IBM (NYSE: IBM), a tech company/stock that counts Hewlett-Packard (NYSE: HPQ), Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) as competitors, reported numbers for the fourth quarter and full fiscal year on Tuesday after the bell. It was a good report. No, make that a great report. There was little for shareholders to be blue about, at least from where I sit.
Okay, let's begin at the top line for Q4, which is pretty much the only disappointment here. Revenue decreased over 6% to $27 billion. That missed estimates. A strong dollar screwed up that part of the income statement. Yes, a stronger dollar is cool but not when you're a multinational entity. Earnings per share increased 17% to $3.28, and that beat expectations by a significant amount (Wall Street was thinking $3.03 might be the number). Gross margin went up by three points, too.
Now, let's tackle the full year. Revenue increased 5% to $103.6 billion, and earnings per share jumped 24% to $8.93. Again, the top line missed, but the bottom line beat by a lot (analysts were looking for $8.69). And now let me point you to one of my favorite metrics, free cash flow. IBM generated an increase of 15% of the green stuff, delivering a spectacular $14.3 billion.
So, yes, revenue was hampered, but margins were great, and management is expecting growth in 2009. The powers that be at Big Blue are looking for at least $9.20 per share for the bottom line next year, and that would represent an appreciation rate of 3%. That, I have to admit, isn't too impressive. But hopefully this guidance will turn out to be conservative.
Believe me, I can understand being conservative. In this hellish environment, what else can you do? So, while IBM's shares popped 4% during the after-hours session yesterday, and while this report would definitely scream buy in any other trading environment, I have to reiterate the cautious stance I took in my earnings-preview piece. You could enter a position now and then regret it later if the bear market worsens from here. Just look at the tape as of late. That being said, I think IBM did a great job in 2008, I think it's definitely well-run, and I think it will continue to do good business and generate excellent cash flow in '09.
Disclosure: I don't own any company mentioned; positions can change without notice.
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