Kyndryl shares drop 10% after fourth-quarter earnings miss

Shares of information technology services provider Kyndryl Holdings Inc. closed almost 11% lower today after it posted weaker-than-expected quarterly results.

The company generated an adjusted net income of $40 million in the three months ended March 31. That translated into adjusted earnings of 18 cents per share, well below the 45 cents that analysts had expected. Kyndryl delivered adjusted earnings of 52 cents per share a year earlier.

The company’s sales also declined over the past 12 months. The $3.75 ‌billion in revenue it delivered during the fourth quarter represents a 5% constant-currency decline from last year. Nevertheless, Kyndryl managed to top the consensus estimate by a hair. Its total sales in fiscal 2026 amounted to $15.1 billion.

There were multiple bright spots in Kyndryl’s full-year results. The first was that it generated $1.9 billion in revenue from contracts related to hyperscale public clouds, 57% more than in fiscal 2025. Kyndryl says it exceeded its internal growth target by $100 million.

Kyndryl launched its hyperscale business after spinning out of IBM Corp. in 2021. Prior to the spinoff, it only took on cloud projects that involved IBM’s infrastructure-as-a-service platform. That locked Kyndryl out of contracts focused on more popular clouds.

The company followed up the launch of its hyperscale business by forming a business unit called Kyndryl Consult. The unit provides services that help enterprises speed up high-priority IT projects such as AI agent deployments. Kyndryl Consult’s revenue rose 18% in fiscal 2026, to $3.5 billion, and the value of the new deals it signed during the year amounted to $4 billion.

During fiscal 2025, half the company’s revenue came from contracts signed prior to its 2021 spinoff. Those contracts generally have lower margins than Kyndryl’s newer deals. According to the company, IBM-era contracts’ share of revenue fell to 35% in fiscal 2026 and is set to decline another 15% this year. That puts the company on track to achieve high-single-digit margins.

Kyndryl’s plan to improve its financial performance also includes a “workforce rebalancing” initiative that was announced today. The company didn’t specify how many employees it plans to let go, but did state that most of the layoffs will be completed in the current quarter. Kyndryl had about 73,000 ​employees at the end of March.

The company expects to take a $200 million charge in connection with the job cuts. It estimates that the restructuring will unlock $400 million to $500 million in annual savings. Kyndryl expects to generate adjusted pretax income of $600 to $700 million in fiscal 2027, while revenue will be flat or decline by up to 2%.

“As we move into fiscal 2027, we are focused on consistent execution and improving business fundamentals to drive profitability and cash flow and support our multiyear objectives,” said Chief Executive Officer Martin Schroeter.

Image: Kyndryl