What to watch in Cisco earnings: product orders, margin pressure
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Cisco Systems (NASDAQ:CSCO) reports its off-quarter earnings after the market closes Wednesday, and investor questions going into the print aren't novel: Overall, eyes will be on Cisco's ongoing (and not that simple) transition away from legacy hardware toward software and services.
Meanwhile, as the biggest provider of networking equipment, Cisco can't fully escape the twin concerns affecting nearly all big companies: Heavy supply-chain challenges emerging from the COVID-19 pandemic (and landing heavily on technology hardware names), and macroeconomic worries, which are going hand in hand with record inflation.
Observers will be listening for management's thoughts about how inflation is affecting its customers' spending, as well as effects on gross margin.
Peers have generally seen some modest beats but are typically seeing margin pressure as a result of the economic environment - and Wall Street's expectations for Cisco's gross margin are aligned with the high end of management guidance, setting up a potential miss there.
Analysts including Morgan Stanley's Meta Marshall have pulled back on their expectations for product order growth - which has been in the low 30% range for a few quarters, but isn't expected to reach 30% this quarter, and rather should end up somewhere in the 20%-plus range.
Consensus expectations from Wall Street are for Cisco to report earnings of 86 cents per share, on revenues of $13.3 billion - both figures about 4% better than the same quarter a year ago.
Meanwhile, in price-earnings ratio the stock is trading around a multiple of 13x its three-year average. Cisco stock (CSCO) is down 20% year-to-date, caught up in a general technology sell-off. It's only 4.4% below the level it hit a year ago.
The company has its earnings conference call set for 4:30 p.m. ET.