Kyndryl
shares spiked in late trading after the company posted June quarter financial results that trounced Street estimates. The IT services company, which spun out of
IBM
in November 2021, also raised its full-year guidance.
IBM shed Kyndryl as part of a strategy to focus on higher-growth, higher-margin businesses—in particular hybrid cloud services and artificial intelligence software. Ironically, Kyndryl shares this year have outperformed their former parent—12% to 4%—before Monday’s after-hours spurt.
In late trading, Kyndryl has rallied 14.5%, to $14.26.
The company is seeing a payoff from what it calls its “three A” strategy of pursuing alliances, in particular with cloud computing vendors, increased automation and eliminating accounts with substandard margins.
For the company’s fiscal first quarter, Kyndryl (ticker: KD) posted revenue of $4.2 billion, down 2% from a year ago, but about $100 million ahead of consensus. Adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, was $612 million, well above consensus at $466 million. Kyndryl had an adjusted pretax profit of $47 million, while analysts on average had expected a loss of $59 million. Kyndryl had a net loss $141 million in the quarter, or 62 cents a share, considerably narrower than the Street consensus forecast for a loss of 91 cents.
“We’re relentlessly transforming our business, and this past quarter represented an important turning point,” Kyndryl CEO Martin Schroeter said in a statement. “We now expect to generate adjusted pretax profit this fiscal year and going forward. This return to profit, driven by our strong execution, positions us well to deliver the significant margin expansion we’ve targeted.”
For the March 2024 fiscal year, the company said it now expects pretax income of at least $100 million, with adjusted Ebitda margin of 14%, above its previous forecast of 12% to 13%. Kyndryl reiterated its forecast for constant currency revenue to decline between 6% and 8% from the prior year. The company expects positive revenue growth in fiscal 2025.
Write to Eric J. Savitz at [email protected]
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