IBM shrugs off investor EPS concerns, sells growth story

By all accounts, yesterday was a great day in IBM’s recent financial history. It said its revenue rose 6.5% in Q4, the highest in years. Investors liked the results, and the stock rose in after-hours trading. That is, until CFO Jim Kavanaugh answered a question on the company’s earnings call about its earnings per share projections for next year, and the rally sputtered — at least for a time.

Fast forward to this morning, and investors are apparently focusing more on the good news and ignoring the bad. What did Kavanaugh say that briefly caused the stocks to reverse direction? Stifel Financial Corp. analyst David Grossman asked a question about EPS (earnings per share estimate), and that’s when Kavanaugh made clear the company wasn’t going to be playing that game.

“And I’m a very big believer in focus. And that focus is around two measures: revenue growth and free cash flow. So, I am not going to talk about EPS guidance. And by the way, EPS, as you know quite well, there are many ways of getting to an EPS number,” he said on the call.

What’s the CFO on about?

Putting on our accounting hats, what the CFO is discussing is not corporate pablum. IBM is aiming to reignite growth, the revenue component of Kavanaugh’s comments. The free cash flow piece is a bit more nuanced, but it matters that IBM is focusing on growth more than profitability.