On Monday, Kyndryl Holdings, Inc. (NYSE:KD) shares plunged significantly after it reported worse-than-expected third-quarter results and cut its FY26 adjusted pretax income and free cash flow guidance.
Also, JP Morgan downgraded the company’s shares and slashed the price forecast following the earnings miss.
• Kyndryl Holdings stock is testing key support levels. Why is KD stock at lows?
Earnings Snapshot
The provider of IT infrastructure services reported adjusted earnings per share of 52 cents, missing the analyst consensus estimate of 60 cents.
Quarterly revenues of $3.86 billion, up 3% year-over-year (Y/Y), slightly missed the street view of $3.89 billion.
The company reported signings of $15.4 billion for the trailing 12 months ended Dec. 31, 2025.
In the third quarter, Kyndryl signed 11 customer contracts, surpassing $50 million each.
Adjusted EBITDA was $696 million, a decline from $704 million in the year-ago quarter.
During the quarter, the anticipated pretax margin on new contract signings remained in the high single digits, consistent with recent periods.
Kyndryl repurchased 3.7 million shares for $100 million in the third quarter.
The company exited the quarter with cash and equivalents worth $1.35 billion.
Segments & Geographies
At constant currency, revenues in the U.S. remained flat Y/Y at $958 million, while those in Japan fell 1% Y/Y to $568 million in the quarter.
By segments, Kyndryl's hyperscaler cloud revenue soared 58% Y/Y to $500 million in the quarter. At this pace, the company expects to surpass the target of $1.8 billion in 2026.
In the quarter, Kyndryl Consult revenues grew 24% Y/Y, with signings coming in at $4.1 billion over the past 12 months.
Leadership Changes
Today, Kyndryl disclosed the immediate appointment of Harsh Chugh as interim chief financial officer, replacing David Wyshner.
AI Expansion
Kyndryl is further enhancing its AI capabilities, introducing new agentic AI services for workforce readiness, Agentic AI Digital Trust to securely manage deployments across hybrid and multi-cloud environments, and agentic AI solutions for mainframe modernization.
Leveraging Kyndryl Consult, global AI hubs and the Kyndryl Agentic AI Framework, approximately 25% of the recent signings now feature AI-related offerings.
FY26 Outlook
Kyndryl Holdings now expects FY26 adjusted pretax income of $575 million–$600 million, down from the previous forecast of $725 million, with free cash flow projected at $325 million–$375 million versus the prior outlook of $550 million.
The company anticipates constant-currency revenue to decline 2%–3%, compared with an earlier expectation of a 1% drop.
In FY26, the firm is expected to generate approximately $325 million-$375 million in free cash flow.
JPMorgan Downgrades
Analyst Tien-tsin Huang downgraded the copy to Underweight from Overweight and significantly slashed the price forecast to $16 from $40.
The bearish stance reflects the company’s cuts to sales and profit guidance, the unexpected departure of the CFO and a delayed 10-Q filing.
The analyst says that last quarter, they overlooked the revenue miss, expecting profits and free cash flow to remain stable.
Today's negative outlook and CFO change raise new uncertainties, delaying the turnaround and challenging the investment thesis, adds the analyst.
KD Price Action: Kyndryl shares are trading lower by 54.92% to $10.59 at publication on Monday.
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