Red Hat convertibles fall after earnings news, CFO exit; Micron pushes higher on earnings

By Stephanie N. Rotondo

Seattle, Dec. 22 – Though liquidity continued to be constrained in the convertible bond market, earnings news was pushing around Red Hat Inc. and Micron Technology Inc. on Thursday.

Red Hat announced earnings late Wednesday, which came in above analysts’ expectations. However, the company provided guidance for the fourth quarter and full year that was below analysts’ estimates.

Additionally, the company said Frank Calderoni, chief financial officer, was exiting his position to accept a chief executive officer position at another company.

In response, the company’s 0.25% convertible senior notes due 2019 followed the stock downward.

At the close, a market source saw the paper falling nearly 9 points outright to 116.5.

At mid-morning, a trader pegged the bonds in a 117.5 to 117.75 context.

The underlying equity dropped $11.08, or 13.89%, to $68.71.

For the quarter, the Raleigh, N.C.-based software company posted net income of $68 million, or 37 cents per share. Revenue was $615.3 million.

On an adjusted basis, EPS was 61 cents.

Analysts polled by FactSet predicted EPS of 58 cents on revenue of $619 million.

Looking forward, Red Hat said it was expecting fourth-quarter revenue of $614 million to $622 million. Full-year revenue was guided at $2.397 billion to $2.405 billion.

Those forecasts came in below what analysts are projecting: $638 million for the fourth quarter and $2.42 billion for the year.

As for the CFO position, it will be taken over by Eric Shander, principal accounting officer, on an interim basis.

Meanwhile, Micron Technology’s 3% convertible senior notes due 2043 were faring better in the wake of its own earnings report.

A trader saw the convertibles at 102.875 at mid-morning. By the end of the day, the convertibles were seen at 102.375, a gain of about 6.5 points.

“They have moved up over the course of the day,” a trader noted, as the issue opened around 102 to 102.25.

The stock improved $2.61, or 12.68%, to $23.19.

Revenue jumped 23% in the first fiscal quarter of 2017 to $3.97 billion, the Boise, Idaho-based semiconductor company reported. Earnings per share also beat expectations at 32 cents.

Analysts had forecast EPS of 29 cents.

Mentioned in this article:

Micron Technology Inc. Nasdaq: MU

Red Hat Inc. NYSE: RHT

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