Cisco Earnings Preview: Lumbering Along

| About: Cisco Systems, (CSCO)
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Networking leader Cisco (NASDAQ:CSCO) reports quarter ending January 2013 earnings on Wednesday, February 13, after market close. CEO John Chambers is expected to deliver investors another slow-growth quarter for both revenues and earnings per share. Cisco is a tech giant with $90+ billion in total assets, $10+ billion in quarterly revenues, and 70,000+ employees. The Board gives back to shareholders via dividends and a stock repurchase program.

The year-over-year growth rate for total revenues muddles along and is expected to be an underwhelming +4.6% for the quarter ending January 2013. This is below the 4-quarter average of +6.8%. Last quarter was +5.5%.

Estimated QE January 2013 Total Revenues (GAAP)
Analyst Estimates: $12.06B avg, $11.96B low, $12.19B high, 36 analysts
Prior Quarter: $11.59B = +4.1% QoQ
Prior Year: $11.53B = +4.6% YoY
Management Outlook: +3.5% to +5.5% YoY

The year-over-year growth rate for Non-GAAP earnings per share is even slower than revenues and projected at +2.1% for the quarter ending January 2013. This is well below the 4-quarter average of +17.6%. Last quarter was +11.6%.

Estimated QE January 2013 Earnings per Share (Non-GAAP)
Analyst Estimates: $0.48 avg, $0.47 low, $0.49 high, 20 analysts
Prior Quarter: $0.48 = 0% QoQ
Prior Year: $0.47 = +2.1% YoY
Management Outlook: $0.47 to $0.48

The Non-GAAP earnings per share cannot seem to break through $0.48, reaching this level 2 of the past 3 quarters and projected again for the quarter ending January 2013. An EPS of $0.47 was attained in the other recent quarters. Pushing above these marks would dramatically increase investor confidence.

Management projects gross margin to be 61% to 62%. Last quarter was 61%, last year was 61%, and the 13-quarter average is 62%. So no upside or downside surprises are expected from gross margin. Total revenues have been slowly growing since a bottom was reached in January 2011. Operating income and net income reached a bottom in July 2011 and are up-trending. Gross margin has been steady while operating and net margins have fluctuated with the related income. Financial position is adequate with good liquidity.

I have followed Cisco as CEO Chambers navigated Cisco through the 2011 financial lows via restructuring and cost cutting. He has been successful and increased dividends, increased stock repurchases, and achieved improved financial results. Now Cisco is at the point to set the bar higher.

I am neutral on CSCO stock at this pre-earnings phase. Undoubtedly, the past negatives are affecting my enthusiasm and interpretation of the financial data. I need to see yet another quarter, this quarter ending January 2013, financial results that prove a new peak in financial performance has been reached.

Theater revenues, i.e. regional revenues, should be watched. Revenue growth in the Americas has been compensating for an overall mild downtrend in revenues in Europe, Middle East, and Africa. Revenues from Asia-Pacific, China, and Japan have been flat. For Cisco to ultimately accelerate growth, these non-Americas regions will need to contribute to the topline.

Investor sentiment for CSCO stock has been bullish since mid-November. The April 2, 2012 closing peak of $21.19 is being tested pre-earnings. If earnings per share can push higher with this next earnings report, then an upside breakout would occur.

I will review the upcoming earnings announcement for additional information and confirmation for any other reasonable trade set-ups in 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.