IBM "Beats" Thanks To Record Low Tax Rate

Last quarter, IBM - once again - almost fooled the market when it "beat" but only thanks to using the lowest (until then) effective non-GAAP tax rate in its history (excluding one charge-filled quarter in which the rate N/M). Fast forward to the last quarter of 2017 when IBM did it or at least tried it, yet again: in the three months ended Dec. 31, IBM reported Non-GAAP EPS of $5.18, barely above the expected $5.17, a clear and brazen exercise in goal-seeking.

How did IBM "beat" again? By applying the same tired shtick it has used every quarter for years now: an ever lower effective (non-GAAP) tax rate, which in Q4 dropped to an all-time low of 6.1%, down from the already laughable 11% in Sept 30, 2017. This is after the company announced it would incur a one-time charge of $5.5 billion due to tax reform (including that, IBM's effective tax rate was 123.6%). Of course, had IBM used even last quarter's 11% tax rate, it would have missed.

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At this rate, IBM will soon need a negative non-GAAP tax rate to make its negative non-GAAP earnings turn positive or some other double negative. That or IBM is hoping that Trump tax reform passe another 4-6 time.

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Amusingly, readers will recall that last quarter IBM boldly said that it "continues to expect a full-year effective operating (non-GAAP) tax rate of 15 percent, plus or minus 3 points, excluding discrete items."

Well, as we jokingly predicted last quarter, it was minus: IBM's full-year non-GAAP effective tax rate was 12%.

Yet while IBM is an undisputed wizard when it comes to fudging its bottom line, there was finally some good news on the top line, where after 22 consecutive quarters, IBM finally posted an increase in Y/Y revenue, the first time it did so in 22 consecutive quarters.

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And while IBM beat on the top line, it still missed its Q4 adjusted gross margin of 49.5%, which came in well below the estimate of 50.8%

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Moon Kil Woong 1 year ago Contributor's comment

Sadly, it wasn't a strong showing for #IBM. That said, at least it is finally showing revenue growth. $IBM