IBM stock slips after beating Wall Street's revenue and earnings estimates

IBM $IBM reported third-quarter revenue of $17.1 billion on Wednesday, up 5% from a year earlier, and adjusted earnings of $2.95 a share. IBM stock slipped in extended trading.

Revenue rose 6% at constant currency. Analysts had expected revenue of $16.82 billion and adjusted earnings of $2.86 a share, according to CNBC.

Net income was $2.19 billion, or $2.30 a share, up from $1.74 billion, or $1.84 a share, a year earlier. IBM's adjusted earnings exclude acquisition-related and retirement-related adjustments.

"Disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow," Arvind Krishna, IBM chairman, president and chief executive officer, said in a statement.

Software revenue rose 8% to $7.8 billion, or 9% at constant currency. Red Hat revenue rose 11% and data revenue rose 19%. Analysts had expected software revenue of $7.66 billion, according to CNBC.

Consulting revenue was flat at $5.3 billion, up 2% at constant currency. Infrastructure revenue rose 4% to $3.7 billion. Within that segment, distributed infrastructure revenue rose 31% and IBM Z revenue fell 20%.

The adjusted gross profit margin was 58.5%, down 20 basis points from a year earlier. Analysts had expected 59.1%, according to CNBC.

IBM said free cash flow was $3.0 billion in the quarter, up $0.7 billion from a year earlier. For the first nine months of the year, free cash flow was $7.8 billion.

The company expects its full-year free cash flow to exceed last year's figure by over $1 billion. In July, its forecast was an increase of approximately $1 billion, according to CNBC. IBM kept its forecast for full-year constant-currency revenue growth of 4% to 5%.

IBM now expects software growth of 7% to 8% for the full year, with the bottom of the range raised from 6%, Chief Financial Officer James Kavanaugh told The Wall Street Journal.

IBM’s second-quarter results suffered because several mainframe deals slipped, according to The Wall Street Journal. Roughly two-thirds of those agreements were finalized in the third quarter, Kavanaugh told the Journal. He described the shortfall as a matter of timing, not lost demand.

"We do not see anyone getting off of our mainframe platform, and therefore the associated mainframe software stack on top of it," Kavanaugh said, according to The Wall Street Journal.