Earnings Outlook: IBM earnings: Short-term revenue pain needs to translate into services growth

International Business Machines Corp. needs to show how the short-term pain of declining revenues is going to pay off as the company keeps shifting toward a more services-oriented business.

IBM IBM, -0.31%  is scheduled to report first-quarter earnings after the close of trading on Tuesday.

Stifel analyst David Grossman, who has a buy on IBM, said the first quarter is usually seasonally weak so he doesn’t expect any changes to IBM’s outlook. Last earnings report, the company forecast adjusted earnings of “at least $13.90” a share for the year.

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“The cognitive/software segment should be stable (flattish +/-) given it is coming off a very strong transactional 4Q18 and will still include the pending divestitures, which are a headwind to growth,” Grossman said.

Divestitures and the finalization of IBM’s acquisition of Red Hat Inc. RHT, -0.03%  to shore up its hybrid cloud offerings should improve fundamentals in the cognitive business, he said.

Earnings: Of the 18 analysts surveyed by FactSet, IBM on average is expected to post adjusted earnings of $2.22 a share, compared with $2.45 in the year-ago quarter. The current estimate is down from the $2.26 a share expected at the beginning of the quarter. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $2.27 a share.

Revenue: Wall Street expects revenue of $18.47 billion from IBM, a decline of 3.2% from the $19.07 billion in the year-ago quarter, according to 17 analysts polled by FactSet. Current analyst expectations have fallen from the $18.78 billion forecast at the beginning of the quarter. Estimize expects revenue of $18.75 billion.

Analysts surveyed by FactSet expect cognitive-solutions revenue to decline 2.9% to $4.18 billion from the year-ago quarter. Technology

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