Earnings: IBM, Merrill Lynch

Earnings: IBM | Merrill Lynch

IBM Posts Big Q4 Profit Rise

(AP) Fourth-quarter profit at International Business Machines Corp. (IBM) rose 11 percent and beat Wall Street expectations Thursday, and the company also delivered a blockbuster figure in services contract signings, an important measure of future revenue.

In the last three months of 2006, IBM earned $3.54 billion, $2.31 per share, on revenue of $26.3 billion. The numbers were boosted 6 cents per share by a lower tax rate and 5 cents per share from gains related to discontinued operations.

Even without those bumps, the company beat the consensus of analysts surveyed by Thomson Financial. Wall Street was expecting profit of $2.19 per share and revenue of $25.7 billion.

"We had a very strong finish to the year," Chief Financial Officer Mark Loughridge said on a conference call with analysts.

Still, investors were not impressed. Shares of IBM lost $4.25, or more than 4 percent, in extended-session trading. Before the results were announced, the stock lost 57 cents to close at $99.45 on the New York Stock Exchange.

The figures all surpassed last year's results, when profit was $3.19 billion, $1.99 per share, and revenue was $24.4 billion. However, profit in that comparison quarter was dragged down about $200 million after taxes, or 12 cents per share, by a one-time accounting charge and costs IBM incurred in freezing its pension plan.

In one sense, this quarter's performance echoed much of the way 2006 played out at Armonk, N.Y.-based IBM. The company struggled to find overall sales growth but rode cost cuts and software acquisitions to higher profits.

However, by another closely followed measure, services signings, IBM's fourth quarter might have marked a turning point. The company signed $17.8 billion in services contracts, a hefty leap from $10.5 billion in the prior quarter and $11.5 billion a year ago.

That could further galvanize investors who have already sent IBM's stock on a tear the past six months. Despite Thursday's decline, shares have still hovered near their 52-week high.

Revenue from those services contracts — including a huge deal recently signed with the German government — will be booked over the course of several years. In the fourth quarter itself, IBM's services division posted revenue of $12.8 billion, up 6 percent from the prior year. Without currency fluctuations, however, the rise would have been 3 percent.

The next-largest division, the hardware-focused systems and technology group, saw a 3 percent revenue rise, to $7.1 billion, but would have been flat at constant currency.

Meanwhile, software, IBM's most profitable unit, had a revenue gain of $5.6 billion, an increase of 14 percent — though it would have been 11 percent with fluctuations in the dollar. Loughridge called it software's best growth in five years.

For all of 2006, IBM earned $9.49 billion, $6.11 per share, on revenue of $91.4 billion. That marked a 20 percent increase in net profit from 2005, when IBM earned $7.93 billion, $4.87 per share, on revenue of $91.1 billion. The increase in earnings per share was even higher than the net profit figure because IBM spent $8 billion buying back its stock in 2006, reducing the number of shares on the market.

Merrill Lynch Profit Rises

NEW YORK (Reuters) - Merrill Lynch & Co. (MER), the world's largest brokerage, said on Thursday that quarterly earnings rose on stronger merger activity and gains from private equity investments.

Merrill Lynch reported fourth-quarter net earnings of $2.3 billion, or $2.41 a share, up from $1.4 billion, or $1.41 a share, in the year-earlier period.

Analysts, on average, had been looking for earnings of $1.92 a share, according to Reuters Estimates.

Merrill Lynch shares are up 38 percent in the past year, beating the 26 percent gain on the AMEX Securities Broker-Dealer Index.