International Business Machines Corporation (NYSE:IBM) Q4 2014 Earnings Conference Call - Final Transcript

Jan 20, 2015 • 04:30 pm ET

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International Business Machines Corporation (NYSE:IBM) Q4 2014 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I will turn the meeting over to Ms. Patricia Murphy, Vice President of Investor Relations. Ma'am, you may begin.

Executive
Patricia Murphy

Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I'm here today with Martin Schroeter, IBM's Senior Vice President and Chief Financial Officer. I want to welcome you to our Fourth Quarter Earnings Presentation. Prepared remarks will be available within a couple of hours and a replay of the webcast will be posted by this time tomorrow.

(Forward-Looking Cautionary Statement)

Executive
Unidentified Speaker

Now, I'll turn the call over to Martin Schroeter.

Executive
Martin Schroeter

Thanks Patricia. Today I will start with a brief overview of our fourth quarter and full year performance, review the details of the quarter and wrap up with a discussion of 2014 and expectations for 2015. Our strategy is focused on leading in the areas where we see the most value in enterprise IT and in 2014 we made tremendous progress in repositioning the portfolio and making investment to shift into these areas. Our results reflect all of that.

In the fourth quarter, we delivered revenue of $24.1 billion, net income of $5.8 billion, free cash flow of $6.6 billion and operating earnings per share of $5.81. Our total revenue performance reflects the divestitures of System x and Customer Care, which together had $1.6 billion of revenue in the fourth quarter of 2013 and we had about a $1.2 billion impact from currency movements. So combined, this represents about $2.8 billion of revenue or a 10 point impact to the reported revenue growth rate.

That currency impact was even greater than spot rates suggested 90 days ago, excluding the impact of currency and divestitures, our total revenue was in line with our expectations. We once again had strong performance in our strategic imperatives that address the market shifts in data, cloud and engagement. Together, they posted double-digit growth as they did in every quarter of 2014.

We had solid improvement in gross and pretax margin as we drive our overall business to higher value. That will certainly continue into this year as we benefit from the recent portfolio actions and we are continuing to shift our investments and resources to our strategic imperatives and solutions that address our clients most critical issues.

Looking at the full year from a financial perspective, we delivered $21 billion of pretax income and operating earnings per share of $16.53. We generated about $12.5 billion of free cash flow, paid out over $4 billion in dividends and reduced our average share count by over 8%, while reducing our core debt by $0.5 billion.

Our strategic imperatives continue to drive strong growth, up 16% in 2014 and that includes an impact from currency. Together, cloud, analytics, mobile, social and security generated $25 billion in revenue, which is 27% of IBM.Analytics was