Cisco Systems, Inc. (NASDAQ:CSCO) is scheduled to report third quarter fiscal year (FY) 2014 earnings after the close of the market on Wednesday, May 14, 2014. Management has scheduled a conference call at 1:30 PM (PT) to discuss financial results for the period.
Wall Street anticipates that the Networking & Communication Devices maker will earn $0.48 per share for the quarter, which is $0.03 less than last year's profit of $0.51 per share. iStock expects CSCO to top Wall Street's consensus number, the iEstimate is $0.49, a penny more than expected.
Sales, like earnings, are expected to decline, slipping 6.8% year-over-year (YoY). Cisco's consensus revenue estimate for Q3 is $11.38 billion, almost a bill lower than last year's $12.22 billion.
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Cisco Systems designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry and provide services associated with these products and their use. Its products are installed at enterprise businesses, public institutions, telecommunications companies, commercial businesses, and personal residences.
Surpassing the street's consensus is the norm for Cisco as the company posted 22 consecutive bullish earnings surprises. That's quite a streak. However, reported earnings tend to hug the consensus. Eleven of the last 22 positive surprises were $0.01 or $0.02 more than forecasted with a nickel as the max. The last four were split between $0.01 and $0.02.
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Although CSCO's May earnings were better than expected in the last four years (obviously), the share price hasn't fared as well in the emerald month. The stock price lost ground three of the last four May announcements, losing -10.15%, -4.83%, and -1.66% in the day surrounding earnings news. However, last May, Cisco shares broke the Q3 losing streak with a gain of 12.3%.
With sales expected to fall and revenue growth declining quarter-over-quarter (QoQ), moving the bullish surprise streak to 23 in a row will depend on margins and, frankly, iStock doesn't like what it see in the networking company's Q2 income statement.
Revenue fell 7.7% in Q2 relative to Q1, which could be a seasonal thing, but total operating expenses plus total costs or revenue grew to 85% of the top line in the second quarter compared to 79.69% in the first three months of the fiscal year. Rising cost and slower sales, no thank-you, that's a toxic mix for the bottom line.
What makes it even worse is that the biggest contributor was cost of revenue for product rising 12.08% while the segment's sales decreased by 10.74% YoY. They are crisscrossing in the wrong directions.
We also don't like to see inventory on the balance sheet building 4.88% compared to the previous year while total revenue is down -7.79%; again, two line-items driving down one-way streets in the wrong directions.
Overall: the iEstimate and Cisco Systems, Inc. (NASDAQ:CSCO) history suggest another small, bullish surprise is likely; however, the streak is in serious jeopardy if sales continue to head south with costs head north. Add in more product than demand as evidenced by increasing inventory as sales fall, and the pieces are in place for ugly quarter with timing the only question.
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