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What's happening:Shares of Open Text Corp. were down 12% as of 11:40 a.m. Thursday after the enterprise information management software company offered weaker-than-expected fiscal fourth-quarter guidance in an operational update.
Why it's happening: Note the update comes on the heels of OpenText's disappointingfiscal third-quarter results a few weeks ago. According to OpenText CEO Mark Barrenechea, the company is still experiencing significant foreign exchange headwinds due to the strong dollar. As a result -- and while OpenText's existing annual targets for the full fiscal year 2015 remain intact -- it now expects fiscal fourth-quarter revenue of $440 million to $455 million, and adjusted earnings per diluted share of $0.64 to $0.72. Analysts, on average, were anticipating current-quarter revenue and earnings of $487.8 million and $0.89 per share, respectively.
OpenText also announced it is initiating a restructuring program to allow it to simplify its business structure which, in turn, will enable it to more effectively focus on its Cloud-based strategy and drive additional operational efficiencies. As part of that restructuring, OpenText is also forming a new "Global Technical Services" organization. And those efficiencies are expected to generate around $50 million in annualized operating expense savings, which will be accretive to fiscal year 2016 earnings with negligible impact to revenue. As a result of the restructuring, OpenText will also take a pre-tax restructuring charge of roughly $25 million in the first quarter of fiscal 2016, as well as total cash payments in the same amount and a 5% reduction in its work force.
Once again, keep in mind foreign exchange headwinds are a temporary problem, and aren't a sign of deeper issues in OpenText's business. And while the reduction in work force certainly isn't ideal, OpenText should emerge a stronger business for it -- and one better positioned to grab share in the fast-growing cloud solutions market. In the end, though our stock market might not enjoy the uncertainty of the restructuring and "disappointing" guidance, I think OpenText's long-term story remains firmly intact.
The article Why Open Text Corporation Stock Dropped Today originally appeared on Fool.com.
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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Open Text. The Motley Fool owns shares of Open Text. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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