Cisco Stocks Sink on Disappointing Fiscal Q4 Outlook

Quick Look

• Stock Impact: Cisco’s shares dropped 12.84% to $42.15 after announcing a lower-than-anticipated revenue forecast for the upcoming quarter.
• Revenue Forecast: The company’s Q4 earnings forecast ranges from $0.76 to $0.84 per share, falling short of the expected $0.92. Q4 revenue is projected to decrease by 1.00% to 5.50%.
• Annual Projections: Cisco expects its annual EPS to be between $3.29 and $3.37, below the anticipated $3.44, with revenue growth estimated at 2.00% to 3.00%, revised down from the initial 5.50% to 6.50% guidance.
• Market Cap Impact: This revision led to a $25.79 billion drop in market capitalization.
• External Factors: The revision is partly due to the impact of China’s Zero COVID policy on the supply chain and demand, alongside the effects of geopolitical tensions between Russia and Ukraine, which also contributed to increased operational costs.
• Q3 Performance: Cisco reported Q3 revenue of $12.84 billion, below the forecasted $13.34 billion, but achieved an EPS of $0.87, slightly above expectations. The Russia-Ukraine conflict influenced a $200 million revenue reduction and increased costs due to halting operations in Moscow and Belarus.

Shares of Cisco Systems, Inc. plummeted in Wednesday’s after-hours market following the company’s issuance of a worse-than-expected revenue forecast for the current quarter.

The American networking company saw a decrease of 12.84% or 6.21 points, closing at $42.15 per share. This followed a downturn from the earlier session of 4.43% or 2.24 points, ending at $48.36 per share. As a result, this drop erased $25.79 billion from the company’s market capitalization.

Cisco now anticipates earnings to range between $0.76 and $0.84 per share for the fourth quarter, significantly below the consensus estimate of $0.92 per share. Additionally, the company expects Q4 revenue to decline by 1.00% to 5.50%.

Circo Projects Low EPS

For the full fiscal year, Cisco projects earnings per share (EPS) to be between $3.29 and $3.37, substantially under the consensus estimate of $3.44. The company also forecasts year-over-year revenue growth of 2.00% to 3.00%, markedly lower than the previous guidance of 5.50% to 6.50%.

Cisco is the latest U.S. firm to report the impacts of China’s Zero COVID policy, which has exacerbated the supply-chain crunch. The tightened restrictions in the world’s second-largest economy have also dampened demand amid rising inflation.

Cisco Delivers Lower Quarterly Revenue

Furthermore, Cisco reported lower-than-expected revenue for the third quarter, putting additional pressure on the stock price. The figure came in at $12.84 billion, falling short of the projected $13.34 billion and remaining roughly flat compared to the same quarter last year.

Ultimately, its earnings per share amounted to $0.87, slightly above the consensus estimate of $0.86. The company noted that the conflict between Russia and Ukraine had reduced its revenue by approximately $200 million following the cessation of its operations in Moscow and Belarus.

Moreover, the geopolitical crisis contributed an additional $5 million to Cisco’s cost of sales for the quarter while also incurring another $62 million in operating expenses.