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International Business Machines (NYSE: IBM) reported second-quarter 2026 earnings that missed Wall Street expectations, although its shares gained about 3% after the company had already warned investors about weaker results last week.
IBM posted adjusted earnings per share of $2.93, below analysts’ forecast of $3.01. Quarterly revenue reached $17.2 billion, missing the consensus estimate of $17.9 billion but still marking a 1% year-over-year increase.
The company also lowered its full-year outlook, now projecting constant-currency revenue growth of 4% to 5%, compared with its previous forecast of more than 5%. The revised midpoint of 4.5% came in below earlier expectations. However, IBM reaffirmed its guidance for free cash flow to increase by approximately $1 billion this year.
Chief Financial Officer James Kavanaugh said the company encountered revenue headwinds toward the end of the second quarter but remained focused on improving productivity, strengthening its portfolio, and generating solid cash flow. He added that IBM continues to prioritize long-term operational efficiency despite near-term challenges.
Software remained the company’s strongest business segment. Software revenue climbed 5% to $7.8 billion, driven by an 11% increase in Hybrid Cloud (Red Hat) and 19% growth in Data. Consulting revenue was unchanged at $5.3 billion, reflecting stable enterprise demand.
Infrastructure revenue declined 7% to $3.8 billion, largely due to a 42% drop in IBM Z revenue following a strong comparison period. The decline was partially offset by a 37% increase in Distributed Infrastructure, highlighting continued demand for other infrastructure offerings.
IBM generated $2.5 billion in free cash flow during the quarter, down $300 million from a year earlier. For the first half of 2026, free cash flow totaled $4.8 billion, remaining flat compared with the same period last year.
CEO Arvind Krishna said IBM remains confident in its long-term strategy, product portfolio, and ability to capitalize on future growth opportunities. The company also reiterated its expectation for improved pre-tax income margin expansion throughout 2026, signaling continued focus on profitability despite softer revenue growth.
