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IBM lowers 2019 EPS outlook after closing Red Hat deal

International Business Machines Corp. lowered its operating earnings guidance for 2019 as it factored in the impact of its $34 billion acquisition of Red Hat Inc., which was completed in July.

The company now expects full-year non-GAAP EPS of at least $12.80, down from a previous forecast of $13.90. The downward revision was due to accounting adjustments for deferred Red Hat revenues, IBM CFO James Kavanaugh told investors in an Aug. 2 conference call.

Kavanaugh also said Red Hat is expected to generate an additional $1.5 billion of free cash flow for IBM by the end of 2021.

While it has lowered the earnings outlook for 2019, the Red Hat acquisition will put IBM back to a "sustainable growth trajectory" starting in 2020, bringing in continued margin expansion and increased free cash flow, IBM Chairman and CEO Virginia Rometty said.

In July, IBM reported non-GAAP EPS of $3.17 for the second quarter of 2019, up from $3.08 a year ago and beating analysts' estimates.

However, quarterly revenue slumped year over year again, pulled down by IBM's biggest segment, which includes infrastructure and technology support services.