Hi Dave - good question.
Re-reading my post, looks like I was throwing numbers around without care, so I'll lay out guestimated CSCO earnings again in more detail below.
For you, both ProForma ($0.09/share) and GAAP ($0.11/share)
But I could be off by 100%, easily. Below the details. Accountants please help me out.
Methodology: Start with assumptions. Revenue flat QoQ versus 2Q. Peg business cycle against revenue, so costs flat. Then add efficiencies and adjust for known guidance. Sensitivity discussion & comments last.
Which gives:
Revenue 6.8 B$. Next, we have to adjust COGS from Q2 due to inventory changes. Two effects. First, we lose the benefit of increasing inventory by 1.2 B$ that they had in Q2 over Q1, and second, we are going to be reducing inventories. Mindmeld and I got somewhere near a total reduction of 1.6 B$ - I don't see it all in one quarter. Say 0.8 B$ this quarter. But that's a pure guess.
Also Reduce COGS due to efficiencies wrung out of the business (400 M$) and net adjustment is: take Q2 COGS of 2.6 B$, add 1.2 from lost inventory bump, add 0.8 from inventory decrease, and subtract 0.4 = 1.6 B$ to get 4.2 B$
+6.8 B$ rev Q3e
-4.2 B$ COGS Q3e
=2.6 B$ Gross Margin (38%) No one time charges buried here.
Next we look at Opex line:
Peg baseline at percent of revenue, then adjust for efficiencies. Assume restructuring charge soaks up all those paychecks that presumably will stop being shipped out next quarter and that salaries for those affected are booked against restructuring charge, not against division.
Finally remember 0 acquisitions = 0 In Progress R&D.
Revenue flat... baseline Opex is 3.13 which includes 0.5 B$ "one time" charges, 0.25 associated with acquisitions.
Adjust:
Deduct: efficiencies -600 M$ "20% cost savings"
Deduct: reduced staff wages & benefits - 300 M$
Add: restructuring charge (one time) 400 M$
Deduct: reduced D&A writedown for IP R&D (one time) -250 M$
GAAP deduction: -750 M$
ProForma deduction: -900 M$
GAAP Opex = 3.13 - 0.75 = 2.38
ProF Opex = 3.13 - 0.25 - 0.9 = 1.98
Investment Gains: Flat 0.3 M$ (one time)
GAAP EBIT: 2.6 B$ GM - 2.38 B$ Opex + 0.3 B$ IG = 0.82 ($0.11/share)
ProF EBIT: 2.6 B$ GM - 1.98 B$ Opex = 0.62 B$ ($0.09/share)
Taxes take it lower.
Sensitivity: The key is going to be how they treat inventory. Next most important point will be revenues. Decline of 10% is a problem. Next is efficiencies squeezed out of the business. I figure easily 1.2 B$ EBIT downside variance, 0.5 upside variance.
At $0.09/sh and flat revenue, CSCO has a spot PE of 50 and infinite PEG. Which isn't a strong "buy the company" endorsement. With variance +/- 100% on this, look out for highly volatile price. It's anybody's guess.
I'll sit tight 'till earnings are digested.
John.
PS, at $0.11 per share & flat revenue, current price of $18 is a PE at current run rate of about 40 (and PEG is infinite). Using $0.09 per share (GAAP) then PE is 50. |
