Cisco Down 12% in Premarket Trading Thursday After Top Line Miss and Lower Forecast

Edward Kim  |

Video source: YouTube, CNBC Television

Cisco's ( CSCO) earnings announcement for its fiscal Q3 after the close Wednesday has sent investors running for shelter.

The company beat on the bottom line with $3.04 billion, or $0.87 per share, just ahead of the $0.86 consensus, but it was the top line that has spooked the market.

Cisco reported revenue for the quarter of $12.84 billion, unchanged over the same period last year. The street was looking for $13.34 billion.

Further, the company provided much worse-than-expected guidance for the current fiscal fourth quarter of a decline in revenue of 1% to 5%, and earnings per share of $0.76 to $0.84.

According to CNBC, the street was looking for 6% top line growth and EPS of $0.92.

Cisco CEO Chuck Robbins explained the revenue shortfall on the earnings call Wednesday afternoon.

"There were two unanticipated events since our last earnings call, which impacted our Q3 revenue performance," said Robbins.

"The first is the war in Ukraine. This resulted in us ceasing operations in Russia and Belarus and had a corresponding revenue impact. The second relates to COVID related lockdowns in China, which began in late March."

"These lockdowns resulted in an even more severe shortage of certain critical components. This in turn prevented us from shipping products to customers at the levels we originally anticipated heading into Q3."

"Our Q4 guidance incorporates a wider than usual range, taking into account the revenue impact of the war in Ukraine and the continuing uncertainty related to the China COVID lockdowns."

Investment thesis

  • Cisco closed Wednesday at $48.36, but shares fell sharply in extended trading and are still under pressure in premarket trading Thursday morning.
  • The stock is at $42.67, down 11.8% as of 8:15am ET.
  • While we like Cisco as a long term core holding, the stock sits in a perfect storm of a downdraft in the tech sector broadly, global supply chain upheaval and Covid lockdown uncertainty in China.
  • Therefore, we don't see any reason for investors to be brave until any of these negative trends appear to be reversing, which may well not be until the end of this year into 2023.
  • As CEO Robbins said on Wednesday's call, "We believe that our revenue performance in the upcoming quarters is less dependent on demand and more dependent on the supply availability in this increasingly complex environment."
  • That's about as negative a statement that investors would expect to hear on an earnings call.

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Source: Equities News

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