Kyndryl(NYSE: KD) stock is posting big gains following the company's recent quarterly report. The IT giant's share price was up 13.4% as of 2:15 p.m. ET. Meanwhile, the S&P 500(SNPINDEX: ^GSPC) was up 0.6%.
After the market close yesterday, Kyndryl published results for the second quarter of its 2025 fiscal year, which ended Sept. 30. The company posted sales and earnings for the period that were better than Wall Street had anticipated, and the company also reaffirmed encouraging full-year guidance.
Kyndryl posts unexpected Q3 profit and strong consulting momentum
Kyndryl posted adjusted non-GAAP (generally accepted accounting principles) of $0.01 per share on revenue of $3.77 billion in fiscal Q2. Meanwhile, the average analyst estimate had actually called for the business to post an adjusted loss of $0.03 per share on revenue of $3.72 billion.
While sales were down roughly 7.4% year over year, they still came in ahead of expectations. Adjusted margins also came in significantly better than projected, leading to the unexpected profit that has Wall Street feeling bullish today. Crucially, Kyndryl's consulting segment served up strong results -- growing sales 23% year over year.
Signings for Kyndryl Consult grew 81% year over year in fiscal Q2 and are now up 41% over the trailing-12-month period. Kyndryl also posted $260 million in sales to cloud hyperscaler customers, and the company reiterated that it's still on track to hit its hyperscaler revenue target of nearly $1 billion in the current fiscal year.
What's next for Kyndryl stock?
Kyndryl expects that its currency-adjusted sales will come in between $15.2 billion and $15.5 billion in fiscal 2025. At the midpoint of that guidance range, that would mean an annual sales decline of roughly 3%. On the other hand, management expects that the business will return to sales growth in the fourth quarter of the current fiscal year.
Adjusted pre-tax income for the business is projected to come in at least $460 million, suggesting a year-over-year increase of at least $295 million. The company also said that it continues to expect adjusted free cash flow of $300 million.
Between strong growth for Kyndryl's consulting segment and sales connected to partnerships with cloud hyperscalers, it looks like the business is seeing some AI-related momentum. With margins improving and sales potentially on track to return to growth in the company's next fiscal year, the stock could still have room to run.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kyndryl. The Motley Fool has a disclosure policy.
