Don't Get Too Worked Up Over These Technology Firms' Earnings
Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A trio of uninspiring earnings reports from technology stalwarts Intel (NASDAQ: INTC), International Business Machines (NYSE: IBM), and eBay (NASDAQ: EBAY) may have investors questioning the technology sector as a whole.
It’s been a notoriously poor period for technology companies over the past few months, and recent earnings reports from these three technology titans continued the disturbing trend of missing analyst expectations. However, each of these companies remains a leader in the technology landscape, and despite the disappointing numbers, here’s why selling now would be a mistake.
Troubling times in technology
Intel posted $12.8 billion in second-quarter revenue and $2 billion in net income, but both metrics missed Wall Street expectations. Management is enthusiastic about the company’s Atom and Core processors, and Chief Executive Officer Brian Krzanich said his top priority is continued penetration of Intel chips in the booming mobile market. Unfortunately, this did not stop shares from slumping in after-hours trading.
IBM, meanwhile, posted second-quarter earnings that fell 17% year over year on lower revenue and higher costs related to layoffs, but shares climbed in after-hours trading since the results weren’t as bad as Wall Street had feared.
Still, earnings per share clocked in at $2.91, 13% lower than last year’s second quarter, which can’t sit well with investors.
eBay’s second-quarter net income jumped nearly 13% on a non-GAAP basis, and revenue climbed 14% year over year. Both figures met analyst expectations, with pronounced strength coming from the company’s highly successful PayPal unit.
PayPal remains one of the company’s most highly lucrative assets, and it held up that reputation in the second quarter. Revenue at PayPal increased 20% year over year and the service racked up 17% additional active accounts in the quarter.
Unfortunately the company’s third-quarter guidance left a lot to be desired, and the stock sold off in the after-hours trading. eBay expects current quarter revenue to be between $3.85 per share and $3.95 per share and EPS of at least $0.61 per share. Both figures missed analyst expectations.
Compelling shareholder returns for the taking
As the markets have sold off these stocks, new investors are getting better and better entry prices. The steep decline in Intel and IBM over the past several weeks has sent their dividend yields significantly higher.
And, it’s not as if Intel’s and IBM’ dividends are standing still. Each company has demonstrated a commitment to raising their shareholder payouts on a regular basis. For instance, Intel has increased its dividend 4 times since the beginning of 2010, and will likely do so again when the company declares its next quarterly payout in the next few weeks.
Even at its current level, Intel's dividend approaches 4% and is one of the highest available in the technology space.
Moreover, Intel is actively buying back its own shares. The company used $550 million to repurchase approximately 23 million shares of its own stock in the second quarter.
When IBM released its first-quarter results in April, it also announced a 12% dividend increase and approved $5 billion in new share buybacks. All told, IBM had approved more than $11 billion in its existing buyback program. Looking further long term, IBM Chief Financial Executive Mark Loughridge reiterated that the company was on track to return $70 billion to shareholders in the five-year period ending 2015.
eBay doesn’t pay shareholders a dividend, but the company does reward its owners with a generous buyback program of its own. eBay accelerated its share repurchases in the first quarter of the year, spending nearly a half billion dollars on buybacks in the first three months.
The Foolish takeaway
Despite the seemingly poor earnings reports from each of these companies, in times like these it’s worth reminding investors to not get too worked up over one quarter’s worth of information.
Even the most successful companies in the world go through difficult periods. IBM is suffering through stagnating revenues and a restructuring of its work force, which will balloon expenses in the short term. Intel is trying desperately to get its chips into mobile devices, where the vast majority of growth will come from for the semiconductor business. Lastly, eBay foresees a difficult quarter up ahead, but is still growing strongly.
As a result, while it’s easy to get tripped up on a poor earnings report, the problems facing each of these companies is short-term in nature, assuming each is successful at fulfilling their strategic priorities.
Consequently, I view any post-earnings sell off in these names as an opportunity to snatch up a great company at bargain prices.
Robert Ciura owns shares of Intel. The Motley Fool recommends eBay and Intel. The Motley Fool owns shares of eBay, Intel, and International Business Machines.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!