IBM (IBM) shares powered higher Thursday after the software and services group posted stronger-than-expected third quarter earnings and said it would top full-year revenue targets despite an increasing headwind from the surging U.S. dollar.
IBM said revenues for the three months ending in September rose 6% from last year to $14.1 billion, topping the Street consensus forecast of $13.5 billion. Adjusted earnings of $1.81 per share, a 2% decrease from last year, also beat the Street forecasts by around 3 cents per share.
Revenues from Red Hat, the cloud computing group that IBM purchased for $34 billion in 2019, were up 12%, while software revenues rose 7.5% to $5.8 billion. Consulting revenues were up 5.4% to $4.7 billion.
Looking into the final months of the year, IBM said that it sees the impact of the stronger U.S. dollar, which is up 20.4% from last year against a basket of its global peers, will clip around 7% from the group's full year earnings, but noted it still expects to beat its prior forecast of "mid-single-digit growth" on a constant currency basis.
IBM also booked a $1.1 billion currency hit to its third quarter revenue total -- up from $900 million over the three months ending in June -- as a result of the dollar impact, which has an outsized impact given that more than half its sales are generated outside of the United States.
"A stronger dollar impacts our revenue and gross profit dollars. We execute a hedging program, which defers versus eliminates the impact of currency," CFO Jim Kavanaugh told investors on a conference call late Wednesday. "But with the rate and magnitude of the movements and because we don't hedge all currencies, we do have a currency impact to our overall profit and cash flow."
IBM shares were marked 4.05% higher in early Thursday trading to change hands at $127.50 each, trimming the stock's six-month decline to around 8%.
