(Bloomberg) -- International Business Machines Corp., the world’s biggest computer-services provider, raised its full-year earnings forecast after second-quarter profit topped estimates.

Excluding some items, profit will increase to at least $15.10 a share this year, Armonk, New York-based IBM said today in a statement, boosting its previous forecast of at least $15. Analysts had predicted $15.06 on average, according to data compiled by Bloomberg. Earnings were $3.51 in the quarter, topping the $3.43 average estimate, even as sales declined.

“This shows their ability to continue to grow earnings when revenues don’t grow,” said Brian Marshall, an analyst at ISI Group in San Francisco. “They did better delivering on the bottom line than people were expecting.”

Chief Executive Officer Ginni Rometty is working to make software account for half of earnings by 2015 because the area is more profitable than the hardware business. With that shift, along with other moves such as stock buybacks and acquisitions, IBM is trying to keep earnings stable through the economic headwinds in Europe and a slowdown in China, said Amit Daryanani, an analyst with RBC Capital Markets in New York.

Pulling Levers

“They’re continuing to execute on things that have worked for them in the past,” he said. “They have a lot of levers, like accelerating cost savings or doing more aggressive buybacks, to reach their numbers.”

IBM shares rose 1.6 percent to $191.25 in extended trading after the report was released. The stock, up 2.4 percent this year, had climbed 2.5 percent to $188.25 at the close.

IBM sales fell 3 percent to $25.8 billion, dragged down by sluggish demand for hardware. Analysts predicted $26.3 billion, the average of estimates compiled by Bloomberg.

Rometty has a five-year plan that targets annual operating earnings of at least $20 a share by 2015, up from $13.44 last year. Analytics software, which helps businesses predict trends, is seen generating $16 billion in sales by 2015, while cloud computing will account for $7 billion.

IBM has used buybacks to reduce its share count by a third since 2000 and boosted its repurchase plan by $7 billion in April. That has helped the company lift its earnings per share and stock price and won praise from investors such as Warren Buffett.

IBM’s sales in Europe, the Middle East and Africa were worth less when converted to dollars in the second quarter, as the euro declined about 12 percent from a year earlier. The credit crisis in the region also hurt revenue.

“IBM hedges for that quite a bit, but currency got ugly,” said Ed Maguire, an analyst with Credit Agricole Securities in New York.

Formerly IBM’s sales and marketing head, Rometty, 54, succeeded Sam Palmisano in January. She became the first female CEO in the company’s 100-year history. Palmisano, who had been CEO since 2002, remains chairman.



Register or login for access to this item and much more

All Information Management content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access