Stocks surged upward on Thursday as trade worries subsided and investors began to look ahead to earnings reports next month. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) both finished at record highs.
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Tech stocks led the market higher, with the Technology Select Sector SPDR ETF (NYSEMKT: XLK) rising 1.2%. The biotech sector was particularly strong; the SPDR S&P Biotech ETF (NYSEMKT: XBI) jumped 1.7%.
As for individual stocks, Red Hat (NYSE: RHT) fell in the wake of reporting disappointing revenue, and Under Armour (NYSE: UA) (NYSE: UAA) rose after announcing layoffs and revising profit guidance upward.
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Red Hat misses top-line expectations
Cloud software vendor Red Hat reported revenue below expectations and lowered full-year revenue guidance, causing shares to fall 6.5%. Revenue grew 13.7% to $823 million, coming in at the low end of guidance given three months ago for $822 million to $830 million. Non-GAAP earnings per share beat expectations at $0.85, compared with guidance for $0.81.
Subscription revenue, which comprises 88% of the total, rose 13.4%, while training and services revenue was up 16.6%. Infrastructure-related subscription revenue increased 8.1% to $527 million and revenue from application development and other emerging technologies grew 30.6% to $196 million. Total backlog rose 20% to $3.3 billion.
Looking forward, Red Hat lowered full-year revenue guidance by $15 million to a range of $3.360 billion to $3.395 billion. Guidance for non-GAAP EPS for the year was raised by $0.01 to $3.45 to $3.49.
Red Hat blamed the revenue miss and lowered guidance on currency movements, which reduced revenue by $4.2 million. But in the conference call, the company also said that slowing in the growth of its infrastructure segment was partly due to the loss of one of its top 25 customers and to a "project de-scope" from the U.S. Army.
Red Hat is optimistic about its competitive position, but analysts on the call were clearly concerned about the slowing growth of its middleware offerings, and although the company's business appears to be healthy overall, the stock has been vulnerable to small disappointments lately despite its long-term opportunities.
Under Armour rises on news of workforce reductions
Class A shares of Under Armour gained 6.6% after the company announced an expansion of its restructuring plan to include a 3% reduction in its global workforce and raised guidance for full-year profit.
The sportswear vendor said in a press release today that it will incur $10 million of cash severance charges due to the workforce reduction. Last quarter, the company boosted its estimate of restructuring charges by $80 million to a range of $190 million to $210 million. Today's news raises that range to $200 million to $220 million, which the company said would be incurred in 2018 and will be the "final component and update to the company's 2018 restructuring plan."
Under Armour raised the low end of its earnings guidance for 2018 by $0.02, saying to expect between $0.16 and $0.19 per share, compared with the current analyst consensus of $0.16.
"This redesign will help simplify the organization for smarter, faster execution, capture additional cost efficiencies, and shift resources to drive greater operating leverage as we move into 2019 and beyond," said CFO David Bergman in the press release.
Under Armour's estimate of the cost to return to profitable growth has steadily increased over the past year, but investors seem to think that today's announcement may be the last shoe to drop, and that a recovery may be in sight.
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Jim Crumly owns shares of Red Hat and Under Armour (C Shares). The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool has a disclosure policy.