IBM Beats Q3, Lifts Free Cash Flow Outlook as Growth Hits 5%
IBM topped Q3 estimates on operating EPS of $2.95 and revenue of $17.1 billion, up 5% as software accelerated and infrastructure rebounded. It held its 4% to 5% revenue growth outlook and raised its free cash flow outlook.
IBM reported third-quarter operating earnings of $2.95 a share, $0.09 above the $2.86 consensus, on revenue of $17.1 billion, up 5% from $16.3 billion and above the $16.82 billion consensus. Software grew 8%, Infrastructure returned to growth, and free cash flow rose to $3.0 billion. IBM kept its 2026 revenue growth outlook at 4% to 5% in constant currency and raised its free cash flow outlook. Figures come from IBM's third-quarter results release, with the earnings event page on IBM Investor Relations.
Q3 results versus expectations
| Measure | Q3 2026 | Comparison |
|---|---|---|
| Revenue | $17.1B | $16.82B consensus; $16.3B a year ago (+5%) |
| Operating EPS | $2.95 | $2.86 consensus; $2.65 a year ago (+11%) |
| GAAP EPS (continuing operations) | $2.31 | Up 26% |
| Operating pre-tax income | $3.3B | Up 9% |
| Operating pre-tax margin | 19.3% | Up 0.7 points |
| Operating gross margin | 58.5% | Down 0.2 points |
| Adjusted EBITDA | $4.9B | 28.7% margin |
Revenue beat the consensus by about $0.28 billion, or 1.7%, and operating EPS beat by about 3%, by our calculation. Growth accelerated from the second quarter, when revenue rose 1% to $17.2 billion and operating EPS was $2.93, per IBM's second-quarter release.
Segment results
| Segment | Q3 revenue | Growth | Constant currency |
|---|---|---|---|
| Software | $7.8B | +8% | +9% |
| Consulting | $5.3B | Flat | +2% |
| Infrastructure | $3.7B | +4% | +5% |
| Financing | $0.2B | −4% | −3% |
Software made up about 46% of revenue, by our calculation, and grew 8% after 5% in Q2. Hybrid Cloud, which includes Red Hat, grew 11%, Data grew 19% (20% at constant currency) and Transaction Processing grew 9%, while Automation fell 3%. Consulting was flat, with Strategy and Technology up 2% and Intelligent Operations down 2%. Infrastructure grew 4% after falling 7% in Q2. Hybrid Infrastructure rose 8%, driven by Distributed Infrastructure up 31%, while IBM Z fell 20% and Infrastructure Support fell 3%.
Cash flow and balance sheet
| Item | Q3 2026 | Year to date |
|---|---|---|
| Operating cash flow | $4.0B (up $0.9B) | $11.8B (up $2.6B) |
| Free cash flow | $3.0B (up $0.7B) | $7.8B (up $0.6B) |
| Acquisition spending | $0.9B | $11.4B |
IBM ended the quarter with $11.1 billion of cash, restricted cash and marketable securities, down $3.4 billion from year-end 2025, and total debt of $63.8 billion, including $12.7 billion of IBM Financing debt, up $2.6 billion year to date. Goodwill rose to $74.9 billion from $67.7 billion at year-end, reflecting the year's acquisitions. IBM has no open-market share repurchase program; stock repurchases for tax withholding were $352 million in the quarter. The board declared a quarterly dividend of $1.69 a share, payable December 10 to holders of record on November 10. Dividends paid were $1.6 billion in Q3.
2026 outlook
| Item | Prior (July) | Now |
|---|---|---|
| Constant-currency revenue growth | 4%–5% | 4%–5% (maintained) |
| Free cash flow | Up about $1B year over year | Up more than $1B year over year |
IBM expects currency to be neutral to full-year growth at current rates. CEO Arvind Krishna said "disciplined execution throughout the quarter drove accelerated revenue growth and strong free cash flow," and that clients are deploying Super Intelligence to transform entire operating models. CFO James Kavanaugh pointed to demand across the portfolio and internal productivity initiatives supporting profit and free cash flow growth.
Sources: IBM Investor Relations: 3Q 2026 earnings and IBM second-quarter 2026 results release (SEC Form 8-K). Consensus figures are from Benzinga. This is informational, not a recommendation to buy or sell.
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