International Business Machines Corporation IBM reported strong first-quarter 2025 results, with adjusted earnings and revenues beating the respective Zacks Consensus Estimate.

The company reported a revenue improvement year over year, driven by strong demand in the Software segment. Healthy demand for hybrid cloud and AI (Artificial Intelligence) solutions with a client-focused portfolio boosted the gross margin. Solid free cash flow is a tailwind.

Net Income

On a GAAP basis, net income from continuing operations was $1.05 billion or $1.12 per share compared with $1.57 billion or $1.69 per share in the year-ago quarter. The significant decline in GAAP earnings was due to high operating expenses and income tax benefit in the year-earlier quarter. 

Excluding non-recurring items, non-GAAP net income from continuing operations was $1.60 per share compared with $1.68 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 18 cents. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

Quarter Details

Quarterly total revenues increased to $14.54 billion from $14.46 billion. This uptick was driven by strong demand for hybrid cloud and AI, which aided growth in the Software segment. On a constant currency basis, revenues were up 2% year over year. The top line beat the consensus estimate by $95 million.

Gross profit improved to $8.03 billion from $7.74 billion in the prior-year quarter, resulting in respective gross margins of 55.2% and 53.5% owing to a strong portfolio mix. Total expenses increased to $6.87 billion from $6.67 billion, driven by higher interest expense and R&D costs.

Segmental Performance

Software: Revenues improved to $6.34 billion from $5.9 billion, driven by growth in Hybrid Platform & Solutions, Red Hat, Automation, Data & AI and Transaction Processing with a strong focus on product innovation. This performance reflects increasing demand for a focused portfolio that provides end-to-end hybrid cloud and AI capabilities. The reported segment revenues surpassed our estimate of $5.97 billion. Segment pre-tax income from continuing operations was $1.85 billion compared with $1.5 billion in the year-ago quarter for margins of 29.1% and 25.4%, respectively. 

Consulting: Revenues were $5.07 billion compared with $5.19 billion a year ago, owing to soft demand in some end markets and macroeconomic headwinds. The segment’s revenues missed our estimate of $5.17 billion. Segment pre-tax income was $558 million compared with $424 million in the year-ago quarter for margins of 11% and 8.2%. 

Infrastructure: Revenues were $2.89 billion compared with $3.08 billion, due to lower demand in multiple markets. Segment pre-tax income was $248 million compared with $311 million in the year-ago quarter for respective margins of 8.6% and 10.1%.

Financing: Revenues remained almost flat at $191 million. Segment pre-tax income was $69 million compared with $92 million in the year-ago quarter for respective margins of 35.8% and 47.7%.

Cash Flow & Liquidity

During the first quarter, IBM generated $4.37 billion in cash from operations compared with $4.17 billion in the year-ago quarter. Free cash flow was $1.96 billion in the quarter, up from $1.91 billion in the prior-year period, driven by the combination of high revenue scale and productivity. As of March 31, 2025, the company had $11.04 billion in cash and cash equivalents and $56.37 billion of long-term debt.

Outlook

For full-year 2025, the company expects free cash flow of $13.5 billion, driven primarily by growth in adjusted EBITDA. Revenues for 2025 are likely to grow in the vicinity of 5% at constant currency. For the second quarter of 2025, management expects revenues to be in the range of $16.40 billion to $16.75 billion.  

IBM’s Zacks Rank

IBM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Qorvo, Inc. QRVO is scheduled to release fiscal fourth-quarter 2025 earnings on April 29. The Zacks Consensus Estimate for earnings is pegged at 5 cents per share, indicating a decline of 27.34% from the year-ago figure. 
 
Pinterest, Inc. PINS is scheduled to release first-quarter 2025 earnings on May 8. The Zacks Consensus Estimate for earnings is pegged at 25 cents per share, indicating an improvement of 25% from the year-ago figure. 

Bandwidth Inc. BAND is scheduled to release first-quarter 2025 earnings on May 7. The Zacks Consensus Estimate for earnings is pegged at 29 cents per share, indicating an improvement of 7.41% from the year-ago figure.

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