Cisco: Earnings Preview; reliably beats on EPS but upside got narrower last quarter; waiting for Enterprise to turn around
Cisco Systems (CSCO) is set to report Q3 (Apr) results today after the close with a call to follow at 4:30pm ET. CSCO typically reports 5 minutes after the close. The current S&P CapitalIQ consensus is for adjusted EPS of $0.82 (up 4% yr/yr) and revenue of $12.57 bln (down 1% yr/yr). Cisco typically guides for EPS and revenue (on a percentage basis) for the next quarter.
- Current guidance for Q3 is adjusted EPS of $0.80-0.82 and to revenue of $12.40-12.64 bln. Cisco tends to be conservative with guidance, which usually translates into analysts being on the higher end of guidance.
- Last quarter, the stock traded lower despite a nice upside earnings report, solid guidance and a modest dividend increase. However, there were also some trouble spots. The $0.04 EPS upside was a notch lower than the $0.06-0.08 beats Cisco posted in the prior three quarters. So we'll see if Cisco reverts to its old trends or reports another narrow beat.
- Margins are a closely watched metric with Cisco, so we'll be watching that. Last quarter, the company performed well here despite a difficult macro environment as non-GAAP operating margin in Q2 was 34.4% vs prior guidance of 32-33%. However, Cisco guided to a sequential decline in margins in Q3 at 33-34% although Cisco may have just been guiding conservatively.
- In terms of end markets, Cisco has been seeing signs of gradual improvement led by order growth in Commercial, Public Sector, and Service Provider businesses. However, the Enterprise market remains soft, driven by some elongated sales cycles and a continued pause in spending amongst some customers brought on by the pandemic. Investors keep hoping to see Enterprise start to turn the corner, hopefully we get some positive commentary on the Enterprise segment.
- Finally, in terms of what to expect, Cisco has not missed on EPS in the past five years, so it's pretty reliable.