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Crocs record Q3 revenues, IBM misses estimates, HP bullish profit forecast

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Brian Cheung, Julie Hyman and Brian Sozzi break down some of Thursday’s early earnings movers, including Crocs, IBM and HP.

Video Transcript

JULIE HYMAN: Let's move to what's going on with earnings here. Big companies like IBM reported. IBM reported after the close of trading, revenue missing analysts' estimates. You know, it seemed like IBM was sort of getting its mojo back a little bit, and then, once again, this quarter kind of throws that into question. It is trying to-- well, it is spinning off its computer services unit. It is trying to pivot more toward cloud. But that unit, the cloud unit did not necessarily perform this quarter. The shares are down 6%, Soz.

BRIAN SOZZI: Yeah, I encourage any viewer watching this right now, YouTube, Fios, channel 604, whatever it might be, just take a screengrab on my face right now thinking about IBM. I mean, that was the type of quarter here. In--

BRIAN CHEUNG: What the heck was that?

BRIAN SOZZI: --the golden age-- that's just my face. Screengrab it, and that's my analysis on IBM here. In the golden age of cloud services, software services, an entire, I would say, world still very much captive and working from their home and needing large amounts of computing power, software, you name it, I mean, this company just put up an absolute stinker of a quarter here, really stinker of a quarter. And because of that stinker of a quarter, you're now going to IBM shares yielding close to 5%. That is, the dividend yield. I mean, you could keep that dividend yield.

Look at some of these results in here. The cloud and cognitive software segment, revenue is only up 2.5%. Power systems sales down 24%, or 25% excluding currency inflation. And you hop in the earnings call, and you get the no sense of really that operating margins for this company will improve to any substantial degree over the next 12 months. In fact, they might continue to go down.

At least, that is the mood on the street among those that I've talked to this morning as the company invests in talent. And you also get the sense that they are being distracted, management is being distracted by the upcoming spinoff at Kyndryl. Now, this was pitched to investors as key to the-- key to IBM unlocking a lot more margin potential. And at least for now, it's just not happening.

So a really terrible quarter. The turnaround in IBM completely-- it looks to have stalled. And I think they have to get back out there and now just try to reassure Wall Street that they could, in fact, turn this company around without taking more drastic cost-cutting efforts.

BRIAN CHEUNG: Yeah, I mean, in the same vein, MoffettNathanson out with a note after the earnings release saying that they expect IBM to remain a chronic underperformer in 2021, with weakening free cash flow. And that's despite the optimism, as you point out, Brian, over whether or not allowing Kyndryl to spin off would actually be a positive catalyst for free cash flow growth. So I think that does remain an open story.

I do want to point out that, yes, while the numbers for this quarter weren't great, especially on their business line with their infrastructure and their tech support services, one of the points of optimism was really that Red Hat acquisition that they had a few years ago. Apparently, they hope that that is going to be a bright spot going forward with their open hybrid cloud tech. Apparently, that business was up by 17%. So if you wanted to find one silver lining in an otherwise disappointing report, maybe that's the one.

JULIE HYMAN: But if you compare that with cloud revenue growth at other companies, it's--

BRIAN CHEUNG: Of course.

JULIE HYMAN: --you know, it's just not-- it's just not--

BRIAN CHEUNG: Brian's got to do his face again. Yeah.

JULIE HYMAN: I'm kind of scared of that face. All right, let's talk about HP. What face would-- what face would describe HP here this morning, Brian? The company coming out with a 2022 fiscal forecast that is above what analysts have been anticipating. The shares are up by 5%, and the company says in 2022 it's going to return at least 100%-- I don't know how you would do more than 100%-- it's going to return at least 100% of its free cash flow through dividends and share repurchases.

So folks are getting their money back from this company. Also, the CFO, Marie Myers, said long-term revenue growth will be in the low single-digit percentage. That's a little better than what analysts were looking for. They've been-- they were looking for declines for this company. So Soz, what's your take on this one?

BRIAN SOZZI: Well, my face here is really all smiles, Julie. All smiles for HP's investor day. And really, hat tip to CEO Enrique Lores, friend of the show. Clearly still getting it done here on a couple of things. One, they reiterated third quarter guidance. Over the past few months, we've seen a couple of downgrades on this by the street on HP concern about the trajectory of their PC business. That guidance reiteration I think is very confidence-inspiring.

Number two is that 2022 outlook. The street, at least according to estimates that I saw, looking for about 386 per share. HP is telling you, or telling investors that they might be 407 to 427 on a non-GAAP basis here. So that reflects probably a lot of confidence that they can continue to drive a lot of efficiency in their business, as they have proven that they can continue to do. They're out there buying back a lot of stock, and that the PC business is not going to fall off a cliff. And then really, Julie and Brian, again, all smiles here for HP. Not so much for IBM.

JULIE HYMAN: All smiles, as well, if you are wearing your plastic shoes today. Crocs coming out with numbers that are just-- astonishing? Is that a word for it? Even though Brian a did not get the Hidden Valley Ranch branded Crocs that he entered a drawing for. I can't even wrap my head around that. Brian Cheung, this company's performance is impressive.

BRIAN CHEUNG: I mean, I'm gutted. I hope that they use some of the margin that they had in this quarter to produce more Hidden Valley collaboration Crocs. That way, I can actually get a pair and put it on the flex shelf. But their quarter three revenue is up 73% to $626 million, and they guided on a 20% plus revenue growth in the full year 2022. That explains why shares of Crocs are up about 10% right now on this Thursday morning. And again, a lot of this is just kind of strategic positioning from a cultural standpoint.

There have these collaborations with the likes of Balenciaga, a high-end brand, in addition to random collaborations, seemingly, like Hidden Valley Ranch, where they have those jibbitz. Again, those are these small little things you can put into the holes on the tops of the Crocs that have little Hidden Valley Ranch bottles on there. I mean, they are fully aware of what their brand is. It's ironic, in many cases. And they're capitalizing off of that.

And what's interesting is supply chain issues are also an issue with Crocs, although they said that they're actually repositioning and moving pretty nimbly from their factories in Vietnam, which have been disrupted by the supply chain and the virus, to places like China, Indonesia, and Bosnia. So they're showing that, from a management standpoint, they're just as flexible as maybe the shoes themselves, as well.

BRIAN SOZZI: Maybe IBM should buy Crocs. Boost their growth up, guys.

BRIAN CHEUNG: Why not?

JULIE HYMAN: All right, before we go-- why not? Why not? A little collab. A little IBM branded Croc. There you go. Before we go to break, just want to get a check on Tesla, as well, because we talked about that a bunch at the top of the show. And we are also going to be talking about it next with an analyst. Those shares have turned around. Now they're up by 1%. So much for that 50% gain that it has seen from the lows preventing further gains today. That's not the case anymore.