International Business Machines (IBM) - Get Report shares were active Friday after the cloud and computing company updated investors on the earnings impact of its $34 billion acquisition of Linux-maker Red Hat.
IBM said the acquisition could likely trim non-GAAP operating earnings for the full 2019 year by $1.10 to "at least" $12.80 per share from the $13.90 per share forecast the company published alongside its second-quarter earnings on July 16. IBM also maintained its 2019 free cash flow forecast of $12 billion, and noted the deal would reduce the company's overall tax rate by 2 percentage points.
IBM shares, which traded as low as $145.59 each during the early Friday session, closed the day down around 2% to $147.25, fallowing Thursday's close at $147.62 each, compared to a 0.68% decline for the Dow Jones Industrial Average. The stock has gained around 30% so far this year, however, against a 13% gain for the benchmark.
IBM posted a stronger-than-expected non-GAAP bottom line of $3.17 per share last month, with revenues of $19.2 billion, but issues full-year forecasts that did not include the impact of its Red Hat deal.
"With the acquisition of Red Hat, we'll be combining the power and flexibility of Red Hat's open hybrid cloud technologies with the scale and depth of IBM's innovation and industry expertise," CFO Jim Kavanaugh told investors on a conference call on July 17.
"We continue to expect Red Hat to be accretive to operating earnings per share by the end of the second year, and accretive to free cash flow in the first full year," he added.
IBM said Friday it sees Red Hat adding $1.5 billion in free cashflow in 2021, and sees overall a "high single-digit" growth rate in operating pre-tax income for the 2020-2021 period.
IBM CEO Ginni Rometty called the October 2018 acquisition of Raleigh, North-Carolina-based Red Hat a "game changer", vowing that "IBM will become the world's top hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses."