Cisco Shares Tumble After Muted Near-Term Forecast Clouds Solid Q2 Earnings

Cisco said a "pause" in spending from big customers amid the global economic uncertainty will hold down current quarter revenues, sending shares lower in pre-market trading.
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Cisco Systems Inc.  (CSCO) - Get Report shares were indicated lower in pre-market trading Thursday after the network equipment maker posted modestly stronger-than-expected second quarter earnings while noting that near-term industry spending could dip amid the increasing global macro uncertainty.

Cisco said earnings for the three months ending in December, the company's fiscal second quarter, came in at 77 cents per share, up 5.5% from the same period last year an one penny ahead of the Street consensus forecast. Group revenues, Cisco said, flipped 3.5% to $12 billion, just a shade higher than the $11.98 billion analysts' estimate.

Cisco also said it expects third quarter revenues to fall over the third quarter, as well, with a 1.5% to 3.5% decline forecast for the three months ending in March. Non-GAAP earnings, Cisco said, are likely to come in between 79 cents and 81 cents per share, compared to a Refinitiv forecast of 80 cents per share.

 "Like many in our industry, we are seeing longer decision-making cycles across our customer segments for a variety of reasons including macro uncertainty as well as unique geographical issues," CEO Chuck Robbins told investors on a conference call late Wednesday. "The good news is, once this uncertainty passes for our customers, we expect to see spending recover as technology continues to be at the heart of all they do."

"While we continue to experience some pause in customer spending related to the uncertainty in the global macro environment, our long term growth opportunities remain unchanged," he added.

Cisco shares were marked 6.3% lower in early trading Thursday to change hands at $46.87 each, a move that would extend the stock's six-month gain to around 12%.

"The company continues to see soft demand conditions with weakness extending across all verticals and regions and most products. However, there are a few positive points to consider," said Oppenheimer analyst Ittai Kidron. " Select products are proving resilient (Catalyst/Nexus 9K, HyperFlex, Meraki, AppD, Security), the shift to subscription software is progressing, recent clarity on macro/ poltical events (China trade deal, Brexit) could stimulate demand recovery, and revenue guidance suggests declining order trends have bottomed and point to potential recovery by the July quarter." 

"With the bar set low and a solid capital return program in place, we see limited downside ahead," he added.