IBM Earnings

IBM reported better than expected earnings:

International Business Machines Corp.’s second-quarter profit grew 12% as margin improvement offset lower revenue, and the tech giant raised its full-year outlook in another sign the sector was returning to more customary conditions.

IBM said it believes it can take advantage of growth opportunities that emerge as the economy recovers, leading the company to raise its 2009 full-year earnings guidance to at least $9.70 a share, up from at least $9.20. IBM continued to see earnings “ahead of pace” for its 2010 outlook of $10 to $11 a share.

The drop in payrolls is having just the effect I expected as margins are rising. This recovery will be much like the last one with jobs growth lagging and corporate profits rising. From last week’s market update:

The drop in payrolls and rising productivity will mean the same thing this recovery as last - corporate profit margins and earnings will benefit more than wages as the recovery takes shape.

This won’t be true for every company of course, but in the aggregate I think the theme will hold. Google also reported after the close:

Google Inc.’s (GOOG) second-quarter earnings Thursday rose a better-than-expected 19% on the Internet giant’s ability to manage costs, but revenue growth slowed, indicating that advertising conditions remain challenging.

“They are clearly showing they know how to control costs, which investors like see,” Edward Jones analyst Andy Miedler said, calling the quarter “solid.” He added that the results further demonstrate Google is well-positioned to benefit when the economy rebounds.

I haven’t seen the margins yet but this stood out in the news report:

Notably, the number of Google employees, 19,786, dipped below 20,000 for the first time since last year’s second quarter. Google’s full-time payroll dropped 1.8% during the quarter.

Doing more with less is the new theme.

IBM is trading up in after hours while Google apparently missed the whisper number and is trading down.

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