Linux Red

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What happened

Shares of Red Hat (NYSE:RHT) fell as much as 14% on Thursday morning in response to the previous night's third-quarter earnings release.

So what

The open-source-software specialist saw third-quarter sales rising 18% year over year, landing at $615 million. Adjusted earnings per share increased 27%, stopping at $0.61. Analysts were expecting earnings of roughly $0.58 per share on sales closer to $618 million, so it was a mixed performance.

Alongside the earnings release, Red Hat announced that CFO Frank Calderoni is leaving the company in January to take a CEO position at a still-unnamed company.

Now what

The revenue miss was caused by election-related delays in signing contracts with the U.S. government, moving several large deals to be signed in the fourth quarter instead. Red Hat CEO Jim Whitehurst fully expects to close these delayed deals, so it's hardly a case of lost opportunities.

Further pressure on the top line came from currency exchange effects, as the value of the U.S. dollar keeps rising against other world currencies at a faster rate than analysts or management had expected. But Red Hat balances those sales damages against lower operating costs, as the same currency effects also apply to funding the company's worldwide sales and development staff. So the weakness is long gone before reaching the bottom line, and Red Hat walked the talk by delivering a positive earnings surprise.

Several analyst firms have already urged their clients to buy Red Hat on this share-price dip, and I think it is the right call.

Anders Bylund owns shares of Red Hat. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.

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