IBM Sees Red Hat Accelerating Growth, but Earnings Will Take a Hit This Year

International Business Machines (NYSE: IBM) expects its $34 billion acquisition of software provider Red Hat to deliver significant benefits in the long run, but the deal will weigh on the company's results this year. In an investor briefing on Aug. 2, the company lowered its 2019 earnings guidance due to transaction-related costs. IBM now expects adjusted earnings per share of $12.80, down from previous guidance of $13.90.

The Red Hat acquisition is expected to have a negative impact on IBM's adjusted earnings through 2020, finally boosting the bottom line in 2021. The dilutive impact of the deal is mostly due to noncash costs related to the transaction itself.

For this year, IBM expects equity and retention costs tied to the acquisition to have a $0.25 negative impact on per-share earnings. The suspension of the share buyback program, which will help IBM lower its debt, will have a negative impact of about $0.10 per share.

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