Cisco will report tonight: keep an eye on the order backlog and not on performance

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The information technology specialist will publish its financial reports for the first quarter tonight after the close of trading, when Wall Street analysts expect an adjusted profit of 97 cents on revenues of $14.39 billion.

However, the focus will not be on profit and revenue but on orders – Wall Street sees this as the best indicator of underlying demand and growth for the company. In a research note reviewing the quarter, Evercore ISI analyst Amit Drianani notes that Cisco shares have fallen about 4% since reporting the January quarter results, “likely thanks to investors focusing more on orders than revenue growth.” In the January quarter, Cisco reported that orders fell 22% compared to the same period last year, after seeing growth of more than 30% for several consecutive quarters. “There is little investor concern about the real demand levels and whether there is a possible decrease in 2024 in the order backlog,” writes the analyst.

Drianani says the “boogie” for Cisco may be the 30% drop in orders that Juniper Networks posted last quarter. A decrease of less than that, according to him, should allow the Cisco stock to move up – he says that the figure will be comparable to the last quarter, in the low range of 20%.

Almost every analyst following Cisco focused on the same issue as they looked ahead to financial results for the fiscal third quarter that ended in April and will be released tonight. JPMorgan analyst Samik Chatterjee made a similar point, arguing that the market is likely to ignore even a potential boost to the company’s July 2023 fiscal year forecasts – and focus instead on orders. According to him, another quarter of the orders that fell by 22% or more “will be seen as decisive proof of a much weaker demand background”.

UBS analyst David Vogt looks at the same issue and notes that while “order growth” is lighter by about 0.25% in the April quarter, “there is an increased risk that the expected moderation in order declines from 22% last quarter will not materialize.” According to Vogt, Cisco product orders increased by 33% in the January 2022 quarter, moderating to 8% growth in the April 2022 quarter.

According to Cisco’s forecasts, tonight it should register an increase of 11% to 13% in revenues, which implies that these will amount to 14.4 billion dollars – exactly where the analysts’ forecast is. Cisco expects adjusted earnings of 96-98 cents per share, while the consensus expects exactly 97 cents. The company expects GAAP earnings between 74 and 79 cents, with analysts expecting 78 cents. Cisco sees non-GAAP gross margin for the quarter between 63.5% and 64.5%.

For the July quarter, the market expects revenue of $14.95 billion, up 14.1%, with adjusted earnings of $1.04 per share, and GAAP earnings of 84 cents per share. For the July 2023 fiscal year, Cisco forecast revenue growth between 9% and 10.5%, about $56.6 billion in the mid-range. The company expects annual adjusted earnings of between $3.73 and $3.78 per share, and between $2.85 and $2.96 per share on a GAAP basis.