Shares of Kyndryl Holdings Inc. closed 5.38% lower today after it reported a larger-than-expected sales decline for its fiscal first quarter.

The technology services giant ended the three months through June 30 with $3.61 billion in revenue. That’s 3% less than a year earlier and 1.2% below the consensus estimate. Nevertheless, there were a number of bright spots in Kyndryl’s sales numbers.

The company, a former IBM Corp. unit, spun off in 2021 with a focus on providing infrastructure management services. Such services have relatively low profit margins. In 2022, Kyndryl broadened its focus by launching a unit called Kyndryl Consult. During the first quarter, the business helped cushion the declines that the company experienced in certain other areas.

Kyndryl Consult helps companies with high-stakes technology projects such as building artificial intelligence applications. Its sales grew 10% in the first quarter thanks to 10 deals worth over $50 million. A specific quarterly revenue number was not disclosed. However, Kyndryl did specify that the unit’s sales in the past 12 months amounted to $3.6 billion, a 16% jump from a year earlier.

Kyndryl’s services were originally tailored to former parent company IBM’s public cloud. After spinning off, the company strengthened its partnerships with other cloud providers. Its hyperscaler-related revenue surged 35% year-over-year to $530 million in the first quarter.

Kyndryl has more than 11,000 employees with technical certifications focused on Amazon Web Services Inc.’s cloud. At the start of the quarter, the company expanded its partnership with AWS to broad that talent pool. The initiative will place particular focus on equipping Kyndryl employees with new AI and software modernization skills. Additionally, the companies plan to partner on engineering initiatives.

“Our first quarter results reflected strong momentum in signings, supported by strength in Kyndryl Consult and hyperscalers, with an increasing demand for AI-led modernization solutions,” said Kyndryl Chief Executive Officer Martin Schroeter. “We’re encouraged by the progress we’re making to improve business fundamentals and remain focused on driving consistent execution and delivering our fiscal 2027 and multi-year objectives.”

Kyndryl’s quarterly revenue decline weighed on its earnings. The company swung from a $90 million adjusted profit in the first three months of fiscal 2026 to a $26 million adjusted net loss. That amounts to a loss of $0.12 per share, which is slightly better than the $0.17 loss analysts had expected.

Kyndryl is taking steps to improve its profitability. During the first quarter, the company incurred a $152 million charge in connection with a workforce restructuring program designed to cut costs. Kyndryl expects the initiative to deliver annual savings of between $400 million and $500 million in fiscal 2028.

For the current fiscal year, the company is projecting adjusted pretax income of $600 to $700 million. Kyndryl expects revenue to range between $14.8 billion and $15.1 billion.

Image: Kyndryl