International Business Machines Corp. (IBM), McDonald’s Corporation (MCD), General Electric Company (GE): 3 Dow Stocks Disappoint

International Business Machines Corp. (NYSE:IBM) reported less-than-stellar results on April 18. The next day the stock price dropped like a rock, down more than 8%. A third of the gain made over the last two years was wiped out.

Big Blue, the highest-priced stock in the Dow Jones industrial average, dragged the entire index down and it barely broke even. The broader market was mostly up on the day.

Are things really that bad with a company that had appeared to make a successful transition from the world’s biggest maker of PC’s to one of the biggest business-to-business suppliers of services and computer hardware and software? Will the most innovative company in the world have to reinvent itself again?

For the first time since 2005, the company reported earnings that were lower than consensus estimates. And as a supplier to most of the large-cap companies that are fellow members of the S&P 500 and to many government agencies, some analysts portend that the results are an ominous signal that the broader market and the economy are due for a setback, too. The theory is that if IBM is not making money its corporate customers are holding back on spending.

However, International Business Machines Corp. (NYSE:IBM) officials indicated that the problem was due to poor execution on the part of the company’s sales force and is not an underlying structural weakness or lack of product offerings. There probably will not be a rush to offer other forms of business services, such as cloud-based technology for example, by the Armonk, NY-based company.

In the past, the company has been able to overcome sagging revenue, like the 5% drop just announced, and increase EPS by buying back boatloads of its own stock, spending over $100 billion in the process over the last 10 years. Share count has gone down by 35%. IBM has also returned even more value to investors by consistently raising its dividend.

This time financial engineering may not work and International Business Machines Corp. (NYSE:IBM) will probably need to close more deals in order to grow earnings again.

Fast food lagging too

Another Dow component reporting results that disappointed analysts was the fast- food restaurant chain McDonald’s Corporation (NYSE:MCD), which missed earnings estimates by a penny. The stock suffered and shares were down by about 2% on the day, interrupting a recent rally.

For the last year or so, the company has been warning that same-store sales were declining and could hurt McDonald’s performance. I guess they were right.

McDonald’s Corporation (NYSE:MCD) has been addressing the revenue weakness by trying to lure customers away from competitors with advertising and offerings geared toward the low-priced dollar menu instead of the “Extra Value” meals. Management stated it was willing to reduce margins in order to improve sales.

Based upon its history, the company will probably be able to ride out the storm. It appears to know what to do.