Cisco Tumbles After Company Unexpectedly Slashes Guidance

Looks like we can add Cisco to the list of tech companies that will be aggressively buying back its stock to deflect attention from deterioration fundamentals.

After the close, the internet giant reported Q1 revenue of $13.16 billion, up +0.7% y/y, and better than the consensus estimate of $13.09 billion, resulting in GAAP EPS of $0.68, down 12% Y/Y. As with most other tech companies (and recall that 97% of S&P companies now rely on Non-GAAP numbers to entice investors), Cisco also reported non-GAAP EPS, which predictably were far above the GAAP number, with Q1 adjusted EPS of $0.84, coming well above the $0.81 estimate, and above last year’s non-GAAP number. 

How did Cisco go from $0.68 GAAP to $0.84 non-GAAP? The company was kind enough to provide a bridge that had more adjustments than even perennial non-GAAPer, IBM.

But while the market is now used to massive non-GAAP fudges to make earnings more palatable, as was the case here, the reason why CSCO stock is tumbling after hours, is due to the company’s unexpectedly dour forecast, which sees the high end of its EPS range of $0.75-$0.77 below the consensus estimate of $0.79, while Revenue is now expected to decline 3% to 5% in Q2 Y/Y, an acute disappointment to consensus estimates of 2.7% growth; not even the company’s benign gross profit (which of course was also “adjusted”) margin range of 64.5% to 65.5% vs estimates of 64.6% was enough to offset the dour picture unveiled by the company. The company also said that its real, GAAP EPS, would be just $0.61-$0.67 in Q2.

Commenting on the quarter’s results, Chuck Robbins, chairman and CEO of Cisco said “we delivered a solid quarter against a challenging macro environment” adding that “We’re focused on continuing to drive innovation, transform our business and exceed our customers’ expectations.”

It wasn’t immediately clear what prompted the company to downgrade its revenue guidance, although it is probably safe to assume that China has something to do with it.

Following the poor guidance, shares tumbled over 6% in post-market, dropping as low as $45.1 before rebounding modestly  trading to $46.11.