IBM Raises Full-Year Free Cash Flow Outlook

The Tip Desk · October 25, 2026 · 3 min read

Third-quarter revenue reached $17.1 billion, up 5 percent, as the company now expects full-year free cash flow to rise more than $1 billion year-over-year.

International Business Machines (IBM) reported third-quarter revenue of $17.1 billion, up 5 percent from a year earlier and 6 percent at constant currency, after a second quarter in which revenue had risen only 1 percent.

The technology company said disciplined execution drove the acceleration, led by Software and Infrastructure, and it raised its full-year free cash flow outlook. It now expects free cash flow to increase by more than $1 billion year-over-year, a step up from the prior expectation of an increase of about $1 billion. Constant-currency revenue growth for the full year remains expected in the range of four-to-five percent, with currency neutral to growth at current exchange rates.

Software generated $7.8 billion of revenue, up 8 percent, or 9 percent at constant currency. Hybrid Cloud, including Red Hat, rose 11 percent. Data rose 19 percent, or 20 percent at constant currency, and Transaction Processing rose 9 percent, or 10 percent at constant currency. Automation declined 3 percent. Software segment profit was $2.73 billion, a 35.0 percent margin.

Consulting revenue was $5.3 billion, essentially unchanged on a reported basis and up 2 percent at constant currency. Strategy and Technology rose 2 percent, or 4 percent at constant currency. Intelligent Operations fell 2 percent, flat at constant currency. Consulting segment profit was $653 million, a 12.2 percent margin.

Infrastructure revenue was $3.7 billion, up 4 percent, or 5 percent at constant currency, reversing a second-quarter decline of 7 percent. Hybrid Infrastructure rose 8 percent, or 9 percent at constant currency. Distributed Infrastructure rose 31 percent, or 32 percent at constant currency. IBM Z fell 20 percent, or 19 percent at constant currency. Infrastructure Support declined 3 percent. Infrastructure segment profit was $715 million, a 19.3 percent margin. Financing revenue was $0.2 billion, down 4 percent.

GAAP gross profit margin was 56.8 percent, down 50 basis points. Operating (non-GAAP) gross profit margin was 58.5 percent, down 20 basis points. GAAP pre-tax income margin was 14.6 percent, down 30 basis points. Operating (non-GAAP) pre-tax income margin was 19.3 percent, up 70 basis points. GAAP diluted earnings from continuing operations were $2.31 a share. Operating (non-GAAP) diluted earnings were $2.95 a share. Adjusted EBITDA was $4.9 billion, with a 28.7 percent margin.

Chief financial officer James Kavanaugh said demand across the portfolio and operational execution led to accelerated growth and solid operating pre-tax margin expansion. Chairman, president and chief executive officer Arvind Krishna said clients are deploying Super Intelligence to transform operating models rather than address narrow problems.

In the third quarter, net cash from operating activities was $4.0 billion, up $0.9 billion year to year. Free cash flow was $3.0 billion, up $0.7 billion year to year. The company returned $1.6 billion to shareholders in dividends. For the first nine months, net cash from operating activities was $11.8 billion and free cash flow was $7.8 billion. IBM ended the quarter with $11.1 billion of cash, restricted cash and marketable securities. Debt, including IBM Financing debt of $12.7 billion, totaled $63.8 billion. The company invested $11.4 billion in acquisitions this year.

The board approved a regular quarterly cash dividend of $1.69 a share, payable to stockholders of record on November 10, 2026. With the December 10, 2026 payment, IBM said it will have paid consecutive quarterly dividends every year since 1916.