IBM (IBM.US) Q3 revenue up 5% year-over-year to $17.1 billion; raises full-year free cash flow guidance

After U.S. markets closed on Wednesday, IBM (IBM.US) released its financial results for the third quarter of 2026. Data showed that the company's quarterly revenue was $17.103 billion, up 5% year-over-year, or 6% at constant currency; GAAP net income from continuing operations was $2.199 billion, up 26% year-over-year, with diluted earnings per share of $2.31, up 26% year-over-year. Non-GAAP adjusted net income from continuing operations was $2.812 billion, up 12% year-over-year, with adjusted earnings per share of $2.95, up 11% year-over-year. IBM shares rose more than 2% in after-hours trading. In terms of profitability, IBM's third-quarter GAAP gross margin was 56.8%, down 0.5 percentage points year-over-year; non-GAAP adjusted gross margin was 58.5%, down 0.2 percentage points year-over-year. Adjusted pre-tax income was $3.295 billion, up approximately 9% year-over-year, and adjusted pre-tax margin was 19.3%, up 0.7 percentage points year-over-year. By business segment, Software revenue grew 8% year-over-year to $7.804 billion, with Red Hat hybrid cloud up 11%, Data up 19%, and Transaction Processing up 9%, while Automation revenue declined 3%. Consulting revenue was $5.335 billion, essentially flat compared with the prior-year period; Infrastructure revenue grew 4% year-over-year to $3.707 billion, with Distributed Infrastructure up 31% while IBM Z mainframe declined 20%. In terms of cash flow, IBM's third-quarter cash flow from operations was $4.025 billion, an increase of approximately $900 million year-over-year; free cash flow was $3.027 billion, an increase of approximately $700 million year-over-year. For the first nine months of the year, the company's cumulative free cash flow reached $7.787 billion. As of the end of the third quarter, IBM held $11.1 billion in cash, restricted cash, and marketable securities, with total debt of $63.8 billion. Looking ahead to the full year 2026, IBM maintained its forecast of 4% to 5% revenue growth at constant currency and expects the impact of foreign exchange on full-year revenue growth to be essentially neutral. At the same time, the company raised its free cash flow outlook and expects full-year free cash flow to increase by more than $1 billion compared with 2025. IBM Chairman and Chief Executive Officer Arvind Krishna said customers are gradually applying superintelligence technology to transform their overall enterprise operating models rather than merely solving isolated problems. The company will continue to help customers improve operational efficiency and drive business growth through technology and professional services.