Remember when three short months ago we revealed [4]what was "the scariest chart in IBM's history", namely the one, showing IBM's total debt to equity ratio, which has exploded and surpassed Lehman highs, as the company scrambled to issue more and more debt and use it to repurchase more and more stock?
[5]
With this chart, incidentally, we also explained why IBM's ridiculous stock repurchasing strategy, which had seen $37.7 billion in stock buybacks since 2012, or more than the total debt issuance of $33.6 billion during the same period...
[6]
... could not continue and why, inevitably, IBM would have a massively disappointing quarter.
Well, that quarter just hit, when moments ago in an early press release, IBM reported abysmal adjusted EPS of only $3.68, a huge miss to the
$4.32 Wall Street expected, mostly a function of one simple thing: the
buyback "strategy" finally hit a brick wall.
[7]
Incidentally, we predicted just this in "The Great Stock Buyback Craze Is Finally Ending. [8]" And sure enough, IBM's Net Debt explosion has finally started to recede as even Big Blue is suddenly worried about a very blood red downgrade by the rating agencies.
[9]
Don't worry though: there is some hope, if not much, now that the genie is out of the bottle that IBM will revert back to what it does best - financial gimmicks - quite soon:
At the end of September 2014, IBM had approximately $1.4 billion remaining from the current share repurchase authorization. The company expects to request an additional share repurchase authorization at the October 2014 board meeting.
Funny: so does everyone else.
* * *
Ok, fine, the financial engineering of IBM's EPS is finally over, right on schedule, but what about its top line?
Well, it is here that the disaster really shifted into overdrive.
As the first chart below shows, Q3 revenue of $22.4 billion, a huge miss to the consensus $23.37 billion, was the lowest quarterly revenue since... Q1 2009!.
[10]
And, just as bad, on a Y/Y revenue change basis, the 5.6% drop was the biggest annual decline in revenue since the Lehman Q3 2009 comp, when sales plunged 6.9%.
[11]
Finally, now that the financial engineering no longer fools most of the people all of the time, IBM is finally forced to admit the truth:
- IBM SAYS NO LONGER SEES DELIVERING AT LEAST $20 EPS IN 2015
- IBM SEES 2014 OPERATING EPS DOWN 2-4%
Bottom line, at last check IBM shares were down over 8% premarket, an instant loss of $15 billion in market cap, and is dragging the broader indices far lower. Surely, the GIPF will be busy doubling down on its purchases of IBM stock in today's session.
And now the time has come for companies to finally sit down and do the math on the IRR on all those hundreds of billions in stock buybacks.
And the aftermath...
[12]
