Red Hat earnings miss Wall Street estimates

dranii@newsobserver.comSeptember 24, 2012 

Shares of Linux software company Red Hat fell in after-hours trading Monday after the company reported a quarterly profit that fell slightly short of Wall Street’s expectations even though revenue was on target.

The Raleigh-based company reported after the markets closed Monday that net income, after excluding stock compensation and amortization, totaled $54.9 million, or 28 cents per share. Analysts polled by Thomson Reuters were anticipating an additional 1 cent per share, or 29 cents, which would have been on par with the year-ago numbers.

The shortfall proved illusory, however, as Charlie Peters, Red Hat’s chief financial officer, noted during a conference call late Monday that the company’s quarterly profit was shaved by a penny per share because of legal and accounting costs associated with two small acquisitions announced during the quarter.

“The analysts would not have expected that,” Peters said in an interview after the call. “Now that they know about it, I think they’ll just discount” the shortfall.

“Absolutely,” said Steven Ashley, an analyst with Ashley Baird Equity Research. “That is a nonevent.”

Red Hat shares fell as much as 4 percent in after-hours trading. Earlier Monday, Red Hat shares closed at $57.54, down 10 cents. Its shares have risen 39 percent this year.

Ashley said he was encouraged by the company’s earnings report and conference call even though the company shaved its projections for earnings per share and revenue for the year.

Red Hat’s open-source software is free, but the company makes money by charging customers for maintenance and support and for services such as training and consulting.

The company had been projecting $1.32 billion to $1.34 billion in annual revenue, but reduced its high-end expectations to $1.33 billion for the year.

That revenue tweak is because of lower than expected services revenue, but Ashley doesn’t consider that worrisome.

“It’s not the recurring part of the business, nor is it the critical part,” he said.

Ashley also noted that some of that reduced services revenue can be traced to handing off to systems integrators, such as IBM and Accenture, up-front consulting work done when a company is considering a Red Hat purchase.

That will pay off in the long run because “other people are out there selling your product for you,” he said.

Red Hat reported that revenue totaled $322.6 million for its fiscal second quarter that ended in August, a 15 percent jump that was in line with analysts’ projections. After adjusting for currency fluctuations, revenue rose 20 percent.

“We continue to deliver steady growth,” CEO Jim Whitehurst said during the conference call.

JBoss popularity grows

The company’s revenue increase included a jump in sales for its JBoss middleware, which ties together different business applications.

The increasing popularity of cloud computing is helping to fuel JBoss sales.

The company reported that half its 30 largest deals during the quarter included JBoss, including two deals that each exceeded $10 million.

JBoss “is finally crossing the chasm into really big adoption,” Ashley said.

Ranii: 919-829-4877

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