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Red Hat Shares Tumble 6% After Cutting Forecast

Jim Whitehurst, president and CEO of Red HatJim Whitehurst, president and CEO of Red Hat
Jim Whitehurst, president and CEO of Red Hat

(Reuters) – Red Hat, the world’s largest commercial distributor of the Linux operating system, said it would buy software management provider 3scale, but cut its full-year adjusted profit outlook mainly due to costs related to the deal.

The forecast cut overshadowed the Red Hat’s plan to buy back up to $1 billion in stock and sent the company’s shares (RHT) down 5.5% to $75.36 in extended trading on Wednesday.

Red Hat did not disclose financial terms of the 3scale deal, but said its expects the acquisition to increase its adjusted operating expenses for fiscal 2017 by about $5 million, or 3 cents per share.

The company lowered its full-year adjusted profit to about $2.19-$2.23 per share from $2.22-$2.26, and also below analysts average estimate of $2.24, according to Thomson Reuters I/B/E/S.

Red Hat’s apps business consists of an open-sourced platform for cloud computing called OpenStack, virtualization software that helps companies make better use of their hardware, as well as storage software.

3scale was founded in 2007 and its technology helps firms create, manage, and use application programming interfaces (APIs).

Red Hat also reported a better-than-expected 18% rise in first-quarter revenue, while its adjusted profit met analyst’s estimates of 50 cents per share.

Its second-quarter adjusted profit forecast of about 54 cents per share was a penny below analyst’s estimates due to costs associated with the 3scale deal.