Cisco Beat Estimates -- Lowered Estimates

The company had recently revised expectations, and if the reporting didn't note that, it failed investors.
By Marek Fuchs ,

Why does it fall beyond all reason to ask that when the business media compares Cisco's (CSCO) - Get Report quarterly numbers, reported after the close Tuesday, to expectations that they give an inkling of when those expectations were last set?

Reading up on the earnings this morning, you can see that a few media outlets served you the savvy investor well. But others were as quiet as a cotton ball about when forecasts were last lowered.

So what would The Business Press Maven tell investors to do?

They Just Don't Get Cisco!

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Let yourselves be guided by the first group of articles, and crumple the second. Knowing when earnings are set lets you know the magnitude of the miss/beat, whether management has a clue on operations and the near-term direction of the reporting company's business. Cisco is an essential one too, as it gives an indication on how a host of companies from

JDSU

(JDSU)

to

Intel

(INTC) - Get Report

to

IBM

(IBM) - Get Report

to

Google

(GOOG) - Get Report

might fare.

So you want the standard for reporting on Cisco?

The New York Times

showcases the issue of when expectations were last set where it belongs: in the headline:

Cisco Sales Top Lowered Forecast, and Profit Declines

.

After a wry lead that captured the network equipment makers partial victory cry -- "Cisco Systems to Wall Street: It's not so bad" -- the article made sure you did not miss the central issue, noting promptly that "The company, which makes networking equipment, met its own lowered quarterly sales target on Tuesday while beating analysts' earnings forecast by 2 cents a share."

MarketWatch

mentioned the revenue report up high too,

in the lead, in fact

. But it was written as a positive, reporting a "10% jump" in revenue without mentioning anywhere in the article that this "10% jump" only met reduced expectations: "Cisco Systems Inc. on Tuesday reported a 5% drop in third-quarter net income as higher expenses and an acquisition charge hurt profit, but the company posted a 10% jump in revenue."

Revenue was also "jumping" at

TheStreet.com

, which wrote that the $9.8 billion, came in "slightly above Wall Street's estimate of $9.75 billion." Technically true, but you have to read down three paragraphs to get the meaningful caveat. Snooze and you lose:

"Traders had been on edge after Chambers reduced expectations for revenue in the fiscal third quarter. On the company's last conference call, Chambers cut Cisco's fiscal third-quarter guidance to 10% growth, down from the 15% previously expected."

Read The San Jose Mercury News and it's as if the company never lowered top line expectations. Here's the headline, "Positive numbers for Cisco:GROWTH FOR QUARTER EXCEEDS EXPECTATIONS" and here's the lead: "Cisco Systems, often considered a bellwether for the health of the technology sector, reported third-quarter growth on Tuesday that exceeded expectations."

True enough on the profit side. But that revenue? The way the company ratcheted them down only three months ago? Is it mentioned anywhere in the body of the article? No.

The Associated Press was essentially of two minds.

In a recent update

, we see a positive though puzzled headline: profit beats view, shares rise, but investors are still cautious. Uh, why? We don't hear until down low, when they clue us in about the revenue:

"Sales came in at $9.79 billion, a 10.4 percent jump over the year-ago period. Analysts were expecting sales of $9.75 billion.Wall Street wasn't expecting fireworks from Cisco in the third quarter because the technology bellwether lowered its sales-growth target in February. Cisco blamed weakness in the U.S. economy, which was causing big customers to delay or scuttle big purchases."

Interestingly enough, the issue was up higher in an earlier

AP report by the same journalist

, and that headline, unlike the later one, gave a hint at the important factor concerning the revenue "beat" -- "Cisco 3Q profit beats subdued expectations:Cisco 3Q profit beats Wall Street's subdued forecast, shares rise after hours"

So dear readers, when you are reading quarterly report articles and there is no mention of when any of the numbers were set, just ask yourself: What Would The Business Press Maven do? Then crumple (virtually or literally) the article.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

click here

to send him an email.

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