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Last Week’s Highlights
IBM surges on software AI demand
IBM exceeded analysts’ revenue estimates for the second quarter and raised its annual growth forecast for its software business, driven by increased AI-related spending by clients. The company’s software revenue increased by about 7% to $6.74 billion, and it expects the segment to grow at a high-single-digit percentage in 2024. Additionally, IBM’s AI Book of Business grew to $2 billion, with about $1 billion added in the second quarter. The company’s commercialization of Generative AI is accelerating, positioning IBM to benefit from the growing demand for AI integration. However, IBM lowered its expectations for annual consulting revenue due to clients’ cutbacks on discretionary spending and short-term consulting projects. Despite this, IBM reported a second-quarter adjusted profit of $2.43 per share, beating estimates.
Ford shares fall on higher costs
Ford Motor reported a drop in second-quarter adjusted profit due to quality issues and challenges in its EV business. The company missed analysts’ profit expectations, leading to an 11% drop in its stock price in after-hours trading. While Ford is working to address structural inefficiencies, the stock market remains skeptical. The company’s efforts to fix quality problems have led to increased warranty expenses and a high number of recalls. Despite this, Ford maintained its annual earnings guidance. The company is facing challenges in its EV journey but is focusing on expanding its global hybrid portfolio and developing affordable electric vehicles. Ford’s commercial vehicle business continues to drive overall profit, posting an operating profit of $2.6 billion for the quarter. Meanwhile, crosstown rival General Motors reported a strong second-quarter performance, driven by strong pricing and demand for gas-powered trucks, leading to a raised annual forecast. However, analysts remain concerned about the auto industry’s future resilience.
Coming Up This Week
American Airlines’ sales strategy backfires
American Airlines has cut its annual profit forecast due to a previous sales and distribution strategy that drove away corporate travelers and affected its revenue. The airline also highlighted excess capacity in the domestic market leading to a decrease in the industry’s pricing power. As a result, its shares were down by 5.4%. The company is renegotiating contracts with corporate customers and travel agencies. It has also scaled down its planned seat capacity growth and reinstated competitive fares in the distribution channel traditionally used by travel agencies and corporate managed travel programs. CEO Robert Isom promised a reset, but the company expects the fallout to continue impacting its revenue and earnings for the remainder of the year.
Abbott involved in a millionaire trial
A jury found that Abbott Laboratories’ specialized formula for premature infants caused a girl to develop a dangerous bowel disease, awarding $495 million in damages. The girl’s attorney emphasized the importance of companies being honest about their products, while Abbott disagreed with the verdict, stating the importance of specialized formulas for premature infants. The lawsuit is one of many similar claims pending in courts across the country. The lawsuits allege that the companies did not sufficiently warn about the risk of necrotizing enterocolitis (NEC) associated with infant formula. The jury verdict was not unanimous, and Abbott plans to appeal.
