The market is bidding up CSCO after their results “beat expectations”. This looks like a case of more foolish “analysis” by the analyst community following Cisco. Let’s take a look (all figures are year over year):
Cisco reported a -7.5% year over year decline in revenues. Revenue was essentially in-line with estimates (after being cut last quarter). Operating margins were down to 19.5% vs 24.4%. Not good. When we drop to the bottom line it looks like Cisco beat expectations. CNBC will report the figure at 32 cents which is hogwash. Not only did CSCO have a tax rate that was 2.5% lower than last year, but the number of shares outstanding was reduced by nearly 400K. The apples to apples non-GAAP figure is actually right in line with analyst’s estimates of 30 cents. All in all it looks like Cisco’s business is continuing to deteriorate. A pretty blah quarter by my analysis, but the market seems to like their phantom “outperformance”. Chambers will set the tone for tomorrow’s trading. Considering his usual rear view mirror outlook I expect the conference call to be pretty close to worthless. Moving on….
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UPDATE (5:10 PM):
Chambers is very downbeat on the conference call and currently expects a -15% to -20% decline in revenues for next quarter. Nasdaq futures are tanking hard on the news. Of course, none of this is shocking. A full inspection of the real numbers (as opposed to those expected by Wall Street) showed that CSCO’s business was and still is on the decline.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.