Kyndryl Holdings shares rose 36.7% on 4 November, after the company's fiscal second-quarter results showed adjusted earnings per share of $0.42, up from $0.38 a year earlier, and management reaffirmed its outlook for the year to March 2027.
A move far outside Kyndryl's normal range
The rise was 7.8x the stock's typical daily move over the past year (4.7%), and the largest advance since 25 October 2021. The S&P 500 rose 1.8% the same day, and the median move among Fundamentalytics' other covered IT consulting and services companies rose 0.7%, so the reaction looks specific to Kyndryl rather than a market- or sector-wide lift. Shares closed at $17.68, up from a previous close of $12.94.
| Metric | Value |
|---|---|
| Share price move | 36.7% |
| Closing price | $17.68 |
| Previous close | $12.94 |
| Typical daily move, past year | 4.7% |
| Move as multiple of typical day | 7.8x |
| S&P 500, same session | 1.8% |
| Peer median move, same session | 0.7% |
An adjusted profit beat alongside a GAAP decline
On a GAAP basis the quarter was weaker than a year earlier: revenue fell to $3,651 million from $3,721 million, down 1.9% as reported and down 0.8% in constant currency, and net income fell to $59 million from $68 million, taking diluted earnings per share to $0.27 from $0.29. Stripped of one-off items, including $38 million of workforce-rebalancing charges against $19 million in the prior-year quarter, adjusted pretax income rose to $150 million from $123 million and adjusted net income rose to $92 million from $89 million, lifting adjusted earnings per share to $0.42 from $0.38.
Consult and hyperscaler revenue outgrew the rest of the business
Within the overall decline, Kyndryl Consult revenue grew 4.2% year on year and hyperscaler-related revenue, more than $550 million in the quarter, grew 27.2%. The United States segment, which included a 3-point favourable impact from the resolution of a commercial matter, grew revenue 9.0% as reported. Principal Markets revenue fell 6.1% as reported and Strategic Markets fell 4.8%.
Cash flow turned negative as debt was refinanced
Free cash flow was a $34 million outflow in the quarter, compared with a $22 million inflow a year earlier; the company's reconciliation shows net capital expenditure of $206 million against $125 million a year ago. On 28 September Kyndryl completed $600 million of 7.80% senior notes due 2029 and $400 million of 7.875% senior notes due 2032, and used the proceeds, together with cash on hand, to repay $700 million of 2.05% notes due in October and the $1 billion then outstanding on its revolving credit facility. Management reaffirmed its outlook for the year to March 2027: adjusted pretax income of $600 million to $700 million, free cash flow of $400 million to $500 million, and constant-currency revenue flat to down 2%. It still expects about $200 million of workforce-rebalancing charges for the year, of which $190 million had been incurred by the half-year, with savings beginning in the second half that are expected to largely offset the charges and reach an annualised run rate of $400 million to $500 million in fiscal 2028.
Free cash flow margin and Fundamentalytics' model
Kyndryl's trailing-twelve-month free cash flow fell 38.3% year over year even before this quarter, as free cash flow margin fell 0.6 percentage points; the quarter's cash outflow continues that trend rather than reversing it. Free cash flow margin is one input to Fundamentalytics' discounted cash flow model of Kyndryl: a continued decline would lower the model's value, while meeting the reaffirmed $400 million to $500 million full-year free cash flow guidance would require the remaining two quarters to turn sharply positive. More detail on Kyndryl's margin and cash-flow history is available on its company page. These are model values under stated assumptions, not a comparison with the share price.
Kyndryl's next quarterly filing, covering the three months to December 2026, will show whether the second-half workforce-rebalancing savings have begun to appear and whether free cash flow is on track to reach the reaffirmed full-year range.