IBM Q2 top expectations, but company says it'll outline Red Hat strategy Aug. 2

If you were looking for color on IBM's purchase of Red Hat you'll just have to wait. For the second quarter, IBM topped bottom line expectations with sales down 4.2%.

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IBM's second quarter earnings were better than expected with revenue down 4.2%. The company said it would update its outlook including Red Hat on Aug. 2.

The company reported second quarter earnings from continuing operations of $2.81 a share, or $3.17 adjusted, on revenue of $19.2 billion. Wall Street was expecting IBM to report second quarter adjusted earnings of $3.08 a share on revenue of $19.2 billion, down from $20 billion a year ago. 

The biggest thing Wall Street is looking for out of IBM--beyond revenue growth--is the plan for Red Hat. Analysts will have to wait until Aug. 2. 

Cloud and cognitive software revenue was up 3.2% with global business services sales up 0.5%. Systems revenue fell 19.5% due to IBM Z and storage product cycles. Power systems showed growth. Technology services revenue in the second quarter fell 6.7%.

IBM said cloud revenue was $19.5 billion over the last 12 months, up 5%.

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As for the outlook, IBM said it is on track to deliver non-GAAP earnings of at least $13.90 a share with free cash flow of about $12 billion. That outlook excludes Red Hat as well as charges related to the deal.

IBM did say that Red Hat will bolster free cash flow in the first year, but dilute earnings per share in 2019. 

On a conference call, CFO James Kavanaugh said IBM is seeing "improving fundamentals of our ongoing business. He also said that IBM is focusing on multi-cloud deployments and Red Hat will be a big part of that.

Kavanaugh said:

At the end of the second quarter, we completed the divestiture of select software assets that didn't leverage our integrated value proposition, and we took workforce actions to continue to revitalize our skill base and address stranded costs associated with the divested businesses. We completed the acquisition of Red Hat. This acquisition is an important milestone for IBM and one that will significantly impact the cloud landscape. It is clear that the next chapter of cloud will be about shifting mission-critical work to the cloud and optimizing everything from supply chains to core banking systems. This requires a hybrid multi-cloud open approach to provide portability, management consistency and security for these enterprise workloads. We've been building hybrid cloud capabilities across our business like IBM Cloud, IBM Cloud Private, the Cloud Migration Factory, IBM Multicloud Manager and cloud optimized systems with tens of thousands of cloud architects.

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