Steady Cisco May Show EPS Gain, Better Sales Pace Without Set-Tops
Steady Cisco Systems ( CSCO ) may lack the eye-catching appeal of Juniper Networks ( JNPR ) and its fast 54%-58% non-GAAP earnings growth of the last two quarters. But Steady Eddy also lacks the anxiety of Fast Eddy’s volatile sales that shrank from a year earlier in four of the last six quarters. Cisco has had only two declining quarters of earnings — not one non-GAAP loss — and two shrinking sales quarters in the last four years, the most recent contraction more than two years ago, although growth has decelerated about as often as accelerated. Unlike its rival Juniper, Cisco hasn’t logged double-digit sales growth in 16 quarters. Cisco is expected to report earnings up 2% to 54 cents per share minus items, on revenue down 1.5% to $11.75 billion, for its fiscal second quarter ended in January, according to analysts polled by Thomson Reuters. A year before, the legacy maker of switches, routers and networking equipment for telecoms, Internet service providers and big computing enterprises had reported Q2 non-GAAP EPS up 13% to 53 cents, on sales up 7% to $11.94 billion. The decline in part is due to the sale of Cisco’s television set-top-box business to Technicolor, a deal that closed in November for $600 million. Excluding the set-top-box business, Cisco guided Q2 adjusted EPS to 53-55 cents, on revenue to a range of 0%-2% growth. Cisco stock is performing a bit better than Juniper lately, though it lost 1.2% to 22.65 in the stock market today , 25% off an eight-year high 30.31 set in March. Juniper flattened Tuesday to a 0.1% gain at 21.99, 32% off a four-year high set Nov. 4 at 32.39. Cisco said it was selling the niche business to Technicolor to focus on faster growth areas. Set-top-box sales reportedly had slipped from $2.6 billion to $1.8 billion from fiscal 2013 to 2015. Cisco acquired the set-top-box operation as part of its $6.9 billion purchase of Scientific-Atlanta in 2005. Bernstein analyst Pierre Ferragu, in a research note issued Tuesday, estimated Q2 revenue would fall 1% to $11.8 billion if including set-top-box revenue of $361 million a year earlier, or rise 2% to $11.80 billion by excluding set-top-box sales a year earlier, at the high end of Cisco’s guidance. Wall Street analysts “might not have uniformly excluded (set-top-box performance) from their forecast yet,” Ferragu warned. “For the rest of the year, we expect top line growth to be supported by 1) continued strength in enterprise and commercial; 2) continued momentum in switching, (and) 3) product cycles in routing and collaboration.” He expects 4% revenue growth for the year, in line with consensus. In the last quarter, Cisco was scheduled to close the purchases of Portcullis, a digital security operation; Lancope, a security analytics firm; ParStream, another analytics specialist; and 1 Mainstream, an on-demand streaming-content company. Analysts expect to hear an update from Cisco on its “strategic partnership” with Ericsson ( ERIC ), announced in early November as the biggest deals the two had ever entered into, and expected to generate $1 billion annually in additional revenue for each by 2018. Ericsson closed up 0.6% Tuesday to 8.56. Image provided by Shutterstock .