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Red Hat shares fall as disappointing guidance offsets better-than-expected earnings

Last updated: 12:10 22 Jun 2018 BST, First published: 21:42 21 Jun 2018 BST

Red Hat
The board of directors have authorized a US$1bn stock buyback program

Red Hat Inc (NYSE:RHT) shares fell double-digits in after-hours trading after its low guidance overshadowed its better-than-expected earnings.

The open-source software developer reported earnings of US$0.59 per share on revenue of US$813.5mln compared with US$0.41 EPS on revenue of US$676.8mln in the previous year’s first quarter.

The North Carolina-based company reported adjusted earnings of US$0.72 per share beating estimates of US$0.69 EPS. Revenue also came in ahead of analyst estimates of US$807.5mln.

For the second quarter, the tech company expects earnings of US$0.81 per share on revenue between US$822mln and US$830mln. Analysts were expecting second-quarter earnings of US$0.89 on revenue of US$854.95mln.

READ: Software developer Red Hat surges in pre-market as Q4 numbers top forecasts

For the full year, Red Hat foresees earnings between US$3.44 and US$3.48 on revenue between US$3.375bn and US$3.41bn compared with analyst estimates of US$3.42 EPS on revenue of US$3.45bn.

The company recently expanded its facility in Raleigh, North Carolina, according to a Triangle Business Journal report. As a ground-floor restaurant moves out of their building, a 60-person marketing team will move into the space by spring 2019.

Shares of Red Hat fell more than 10% to US$143.68 in extended trading.

Billion-dollar buyback

The company’s board of directors have authorized a US$1bn stock buyback program.

“Red Hat’s Board of Directors and management team firmly believe in our long-term growth prospects and our ability to generate operating cash flow through our subscription business model,” said CFO Eric Shander in a press release.

Analyst weighs in on Red Hat

Raymond James analyst Michael Turits recently downgrade the stock after concerns that the transition to the cloud may negatively impact its legacy software.

"They did confirm company warnings that legacy middleware is slowing as applications move to containers and cloud, lowering visibility into growth this year and putting added pressure on emerging technologies as well as Linux to maintain high levels of growth," wrote Turits in a note shared by MarketWatch.

Turtis stated that Red Hat’s shift in focus is a risk to its margin and top line.

The analyst downgraded the shares to Market Perform from Outperform.

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