Kyndryl Holdings, Inc. (NYSE: KD) faced a significant setback on Monday as its shares dropped precipitously in response to a collection of adverse developments. The company reported third-quarter financial results that failed to meet analyst forecasts and announced a reduction in its fiscal year 2026 adjusted pretax income and free cash flow guidance. Adding to investor concerns was the sudden departure of the CFO and a downgrade by JP Morgan, which lowered the stock’s price target and changed its recommendation to underweight.
Q3 Financial Performance and Key Metrics
Kyndryl reported adjusted earnings per share (EPS) of 52 cents for the third quarter, noticeably below the consensus estimate of 60 cents established by analysts. The company generated quarterly revenues of $3.86 billion, marking a 3% year-over-year increase but narrowly missing the expected $3.89 billion benchmark. The trailing twelve months revenue signings totaled $15.4 billion as of December 31, 2025.
During the quarter, Kyndryl secured 11 customer contracts each exceeding $50 million, signifying ongoing large-scale business engagements. Adjusted EBITDA for the quarter stood at $696 million, a slight decline from the $704 million reported in the comparable period a year ago.
The firm maintains stable pretax margins on newly signed contracts, which have hovered in the high single-digit percentages over recent quarters, demonstrating consistent profitability levels despite revenue challenges.
Capital management activities included repurchasing 3.7 million shares at a cost of $100 million during the quarter, while the company ended the period with $1.35 billion in cash and cash equivalents.
Business Segments and Geographic Revenue Breakdown
Examining revenue performance at constant currency, Kyndryl's U.S. segment posted relatively flat revenues year over year, totaling $958 million for the quarter. Conversely, revenues from Japan declined by 1% year over year, amounting to $568 million.
On the segment front, hyperscaler cloud revenue experienced robust growth, soaring 58% from the prior year to reach $500 million in the quarter. At this rate, Kyndryl anticipates surpassing its 2026 target of $1.8 billion for hyperscaler cloud services.
Kyndryl Consult, another significant business unit, recorded revenue growth of 24% year over year, with cumulative signings reaching $4.1 billion over the preceding twelve months.
Leadership Transition
On the governance side, Kyndryl announced that Harsh Chugh has assumed the role of interim chief financial officer, replacing David Wyshner. This immediate appointment reflects a shift in the company’s executive management during a critical juncture.
Advancement of AI Capabilities
Kyndryl is intensifying its focus on AI technology, rolling out new "agentic AI" services aimed at enhancing workforce readiness. The company also introduced Agentic AI Digital Trust solutions designed to securely manage deployments across hybrid and multi-cloud environments as well as AI-driven tools targeted at modernizing mainframe systems.
Leveraging its global AI hubs, the Kyndryl Consult division, and the company’s proprietary Agentic AI Framework, approximately 25% of recent contract signings incorporate AI-related solutions, underscoring the strategic emphasis on AI-enabled offerings.
Revised Fiscal Year 2026 Outlook
The company has revised its full fiscal year 2026 financial outlook downward. It now forecasts adjusted pretax income in the range of $575 million to $600 million, a reduction from its prior estimate of $725 million. Additionally, free cash flow is expected to lie between $325 million and $375 million, compared with the previous guidance of $550 million.
Revenue is projected to decline by 2% to 3% on a constant currency basis, marking a steeper drop than the earlier outlook of a 1% decrease.
Market Reaction and Analyst Downgrade
In response to the company's earnings disappointment and downward guidance revision, JP Morgan analyst Tien-tsin Huang downgraded Kyndryl’s stock rating from Overweight to Underweight and significantly lowered the price target from $40 to $16.
The analyst cited the combined impact of lowered sales and profit forecasts, the unexpected CFO departure, and a delayed filing of the company’s 10-Q report as factors contributing to increased investor uncertainty and potential delays to the company’s turnaround plan.
Kyndryl’s stock opened Monday’s session sharply lower. At the time of publication, shares were down approximately 54.92%, trading near $10.59, testing critical support levels amid heightened market volatility.