Red Hat Falls After Second-Quarter Billings Trail Estimates

Red Hat Inc., the largest seller of Linux operating-system software, fell the most since 2006 after reporting second-quarter billings that missed analysts’ estimates.

Billings, a predictor of future revenue, rose 8 percent from a year earlier to $376 million, the Raleigh, North Carolina-based company said yesterday in a statement. Analysts at CLSA had projected an increase of 17 percent, and Stifel Nicolaus & Co. predicted 14 percent growth.

Red Hat’s business was hurt by a slowdown in Europe, while billings were lower than expected because of exchange rates and as customers set up contracts with longer payment terms, the company said. That will continue as Red Hat lands more large deals with flexible payment options for customers, Chief Executive Officer Jim Whitehurst said in an interview.

“It’s going to happen more as we continue to grow,” Whitehurst said. “It will continue to be a bit of a drag.”

Red Hat fell 12 percent to $46.73 at the close in New York, the biggest decline since October 2006. The shares are also down 12 percent so far this year, while the Standard & Poor’s 500 Index gained 19 percent.

Sales in the period ended Aug. 31 rose 16 percent to $374.4 million, compared with the $372.1 million average analyst estimate, according to data compiled by Bloomberg. Profit, excluding some costs, was 35 cents a share, topping the 33-cent average estimate. Net income rose 17 percent to $40.8 million, or 21 cents a share, from $35 million, or 18 cents, a year ago.

Billings Miss

Investors focused on the billings number even as revenue and earnings per share topped estimates.

“While Red Hat beat on revenues, EPS and cash flows, it missed the key billings metric by a wide margin,” wrote Abhey Lamba, an analyst at Mizuho Securities USA Inc., in a note to clients. On average, analysts had estimated billings of $398 million, said Lamba, who has a buy rating on the shares.

Red Hat forecast third-quarter sales of $381 million to $384 million, lagging the $391.5 million average analyst estimate. For the full year, sales will be $1.51 billion to $1.52 billion, below the $1.53 billion average estimate.

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