Cisco: What To Focus On This Week

Aug.11.14 | About: Cisco Systems, (CSCO)


Cisco will report earnings Wednesday afternoon.

Investors looking for revenue turnaround to continue.

Is another restructuring coming?

A good report could send shares to 52-week high.

On Wednesday afternoon, networking giant Cisco Systems (NASDAQ:CSCO) will report its fiscal fourth-quarter earnings. The company will finish off a bad fiscal year, but business conditions have improved in recent quarters. Today, I'll preview the report and detail the key items investors should focus on.

First, let me start with where estimates currently stand. Analysts are looking for revenues of $12.14 billion, a 2.2% decline over the prior-year period. Additionally, analysts are looking for non-GAAP earnings per share of $0.53, which would be up a penny from the prior-year period. At Cisco's last quarterly report, the company guided to a 1% to 3% decline in revenues for fiscal Q4 and non-GAAP EPS of $0.51 to $0.53. That guidance was better than expected, so analyst estimates have risen since. Analysts currently are at the top end of Cisco's EPS forecast, but are slightly below the midpoint of the revenue forecast. In the last four reported quarters, Cisco has beaten by 1, 2, 1, and 3 pennies, respectively.

When it comes to guidance, everyone is looking for continued progress for the company's revenue turnaround. Fiscal Q2 of this year (ending July 2014) saw a 7.8% revenue decline over the prior year period. When it comes to fiscal Q1 of the year ending July 2015, the quarter for which Cisco will be giving guidance, analysts are looking for revenues to match the year-ago period. Additionally, non-GAAP EPS of $0.53 are expected, which also would match the year-ago period. Analysts expect a 4.5% rise in revenues for the fiscal year (ending July 2015) after a 3.4% decline expected for the year to be reported Wednesday. For the July 2015 period, analysts are looking for $2.16 in non-GAAP EPS, after $2.04 expected to be seen Wednesday. In the prior year period, Cisco reported $2.02.

Other than the pure financial results, investors should watch for any major leadership changes or restructurings. I've detailed in the past how the Chambers clock has started, as CEO John Chambers may be about to retire. Since he is approaching the 20th anniversary of taking over as CEO, it would not completely surprise me if he announces a retirement sometime soon. In 2012, Chambers stated he could retire in 2-4 years, so we are within that window. The other possibility is that Cisco announces another round of layoffs, which is an unconfirmed rumor at present. Cisco has cut 12,000 jobs in recent years, but the company has also added a number of employees through acquisitions. More cuts may be needed to help the business operate more efficiently.

The other major item I'll be looking for is any significant update on the company's capital return plan. I do not expect a dividend raise at this report, but Cisco has recently become the new yield leader in terms of US large cap tech. The company had a little more than $10 billion left on its share repurchase program at the end of the previously reported quarter. Cisco has sped up the pace of the buyback this year, so it will be interesting to see if that continued in the latest quarter.

Cisco shares closed Friday just above $25, about a dollar off its 2014 high reached in July. The 52-week high is $26.48, and that is a figure that could be reached this week if Cisco has a good report. The company is expected to show continued progress in its revenue turnaround. I really think investors want to see fiscal Q1 guidance for an increase in revenues, so that's a key item to focus on. Additionally, it will be very interesting to see if Cisco announces another major restructuring. In a couple of days, we'll get the latest quarterly report from Cisco, and I'll be back afterwards to break down the results.

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