Kybdryl beats expectations, cuts its losses by 50% and raises full-year outlook, sending its stock higher

Kybdryl beats expectations, cuts its losses by 50% and raises full-year outlook, sending its stock higher

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Kyndryl Holdings Inc. beat Wall Street’s expectations today as it delivered its second quarter financial results today, narrowing its loss from a year ago. It also raised its full-year outlook, sending its stock up more than 12% in extended trading.

The company, which was spun off from IBM Corp. in 2021, reported a loss before certain costs such as stock compensation of 5 cents per share, beating the analysts’ consensus estimate of 13 cents per share. Revenue for the period dropped 3% to $4.07 billion, but still came in above the Street’s forecast of $3.91 billion in sales.

All told, Kyndryl delivered a net loss of $142 million, down 50% from a loss of $281 million a year earlier.

Kyndryl Chief Executive Martin Schroeter (pictured) said the company has been able to strengthen and transform its business at an accelerated pace, driving faster-than-anticipated margin expansion and creating future growth opportunities. “We’re again increasing our adjusted earnings outlook for the year, and we remain on track to return to revenue growth in calendar 2025,” he said in a statement.

Kyndryl is an information technology services company that once operated as a division of IBM. It’s organized into six global managed services practices, each managing a different aspect of technology: applications, data and AI; core enterprise and zCloud, IBM’s mainframe-as-a-service offering; digital workplace; network and edge; security and resiliency; and cloud. It also offers a customer advisory practice that combines managed services, advisory services, and implementation.

When the company was first spun out by IBM, it said it expected several years would pass before it could return to growth and profitability. However, Schroeter said today in an interview with Barron’s that the company is now ahead of schedule and has been able to raise its fiscal 2023 adjusted pretax income forecast to at least $140 million, up from $100 million.

According to Schroeter, Kyndryl is benefiting from the emergence of trends around artificial intelligence, cloud computing and hybrid infrastructure, which its customers need help with. “We are critical to our customers’ success in taking advantage of secular trends. We’re their heart and lungs,” he said.

In addition, the CEO said the company recently made a decision to reduce or eliminate some of its zero-margin and low-margin contracts, which is why its revenue declined from a year earlier. However, those moves have boosted its profitability. In addition, cost cutting measures have resulted in improved profitability too.

Schroeter added that he’s confident the company will start growing its revenue again by calendar 2025.

Kyndryl said it’s narrowing its outlook for full-year constant-currency revenue growth to a range of 6% to 7%, which is at the higher end of its earlier estimate of 6% to 8% revenue growth.

Photo: IBM

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