Why Kyndryl Holdings Stock Dropped Today
Key Points
Kyndryl missed on its Q4 earnings report this morning.
"Profits" declined precipitously -- but free cash flow still looks very strong.
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Self-proclaimed "world's largest IT infrastructure services provider" Kyndryl Holdings (NYSE: KD) stock got a little less large after missing on its Q4 2026 earnings report this morning.
Analysts had expected Kyndryl to earn $0.49 per share on sales of just under $4 billion for the quarter. Instead, Kyndryl earned only $0.08 per share, and its sales were less than $3.8 billion -- and so now, Kyndryl stock is down 9.4% through 1:20 p.m. ET Wednesday.
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Kyndryl Q4 earnings
Kyndryl's news wasn't horrible, exactly. Sales for the final quarter of the year declined less than 1% year over year, and full-year fiscal 2026 sales were actually up a small fraction of 1%. Despite the tiny changes in sales, however, Kyndryl's profits plummeted dramatically.
For the quarter, Kyndryl's $0.08 per share profit represented a 71% year-over-year decline. For the year, Kyndryl's $0.85 per share profit fell 19%.
Why did the numbers decline? Mainly because Kyndryl operates on such thin margins that almost anything "bad" can upset them. In this case, higher income taxes and a small increase in spending on selling, general, and administrative expenses were enough to upset the apple cart.
What's next for Kyndryl?
The good news is that, as bad as earnings may look right now, Kyndryl is still generating plenty of cash -- $406 million in positive free cash flow in fiscal 2026, down only 3% from last year. The better news is that Kyndryl expects to generate between $400 million and $500 million in fiscal 2027 -- as much as a 23% improvement.
If you ask me, that's simply not bad enough news to justify selling off Kyndryl stock by more than 9%. Wall Street made a mistake today.
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Rich Smith 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.
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