IBM sinks, with the stock on pace for its worst day since 2013

  • The company reported better-than-expected earnings and revenue Tuesday.
  • Shares sank below $150 on Wednesday, after closing Tuesday more than $10 higher.
  • With Wednesday's dip, IBM is down 12 percent on the 12-month period.

IBM slumped more than 7.5 percent Wednesday, on pace for the stock's worst day since April 2013, as analysts and investors balked at lower-than-expected adjusted margins.

The tech company announced better-than-expected earnings and revenue Tuesday, but reported margins that, exempting one-time boosts from workforce restructuring and changes to the U.S. tax code, were mostly flat year over year.

The shares sank below $150 Wednesday, after closing Tuesday more than $10 higher. By midday, the stock was well into correction territory, more than 13 percent off its 52-week high.

"The bottom-line was helped by a one-time tax gain, so on an apples-to-apples basis, IBM missed the Street's profit margin expectations which will weigh on shares along with guidance," Dan Ives, analyst at GBH Insights, said in a note.

IBM does not change guidance estimates in the middle of the year and so reiterated full-year earnings per share guidance of at least $13.80, falling 3 cents below analyst estimates.

"The quarter/guidance overall we would characterize as a slight disappointment as the margin softness, in-line Strategic Imperatives number, and unchanged guidance for the year was not enough for the bulls on the name and could put some pressure on shares," Ives said.

Ginni Rometty, chief executive officer of International Business Machines Corp.
Andrew Harrer | Bloomberg | Getty Images
Ginni Rometty, chief executive officer of International Business Machines Corp.

Still, IBM saw its second consecutive quarter of year-over-year revenue growth after more than five straight years of declines.

"The turnaround is ongoing and, while progress has been slow, there are positive signs. Cognitive/Systems PTI margins demonstrated YoY improvement, ex-significant items, suggesting margins are bottoming. However, revenue growth was flat on a constant currency basis, making it difficult to gain conviction around IBM's ability to deliver consistent improvement," Oppenheimer analyst Ittai Kidron said in a note. "Despite the overall top-line progress, the lack of consistency around driving improvements across the model demonstrates that there is still more work to do."

IBM's finance chief, James Kavanaugh, said the company's first-quarter systems revenue was dragged down by a drop in storage revenue but that the company has "all the confidence in the world" that it can get the storage business "back to where it needs to be" in the second half of the year.

With Wednesday's dip, IBM is down 12 percent on the 12-month period and more than 30 percent off its 2013 all-time high of $215.

-- CNBC's Jordan Novet and Anita Balakrishnan contributed to this report.