Computer networking specialist Cisco Systems (Nasdaq:CSCO) reported another strong quarter after the bell on Tuesday. Despite a strong showing in a weak U.S. economy, reaction to the news was mixed. CEO John Chambers remained cautious about future outlook on the company's earning call, and his caution infected investors as well.

Strong Quarter
Due to one-time charges and acquisition costs, Cisco reported earnings of $1.8 billion (29 cents per share) for its fiscal third quarter, down 5.4% from $1.9 billion (30 cents per share) a year earlier. Excluding one-time charges, the company reported net profit of $2.3 billion (38 cents per share) up 9.4% from $2.1 billion (34 cents per share) in the same period of 2007 (non-GAAP). Adjusted earnings beat consensus analyst estimates by 2 cents per share.

The top line was strong as well. Cisco reported sales of $9.79 billion, up 10.4% from $8.87 billion for the third quarter of 2007. This came in ahead of analyst expectations of $9.75 billion. The quarter was rather impressive, and showed core strength in Cisco, fending off some of the concerns that the company would suffer in a slower economy. Those concerns have taken down shares of Cisco around 14% over the last six months, and have caused the share prices several rivals to drop as well. Alcatel-Lucent (NYSE:ALU) is down 17%; Juniper Networks (Nasdaq:JNPR) has dropped 16%, and Nortel Networks (NYSE:NT) has plunged 55%. The robust sales from Cisco show that some of the worries are off base. (To learn more about quarterly reports, read The Flow Of Company Information.)

Reaction Mixed
Despite the healthy numbers from Cisco, I doubt the shares will be able to recover their recent losses just yet. The stock ran up throughout April leading into the report, and reactions have been mixed after the release, with trading seeing a slight drop in share price. Wall Street had grown accustomed to a very optimistic CEO, but Chambers has been cautious as of late. Despite the better-than-expected growth during the fiscal third quarter, Chambers left guidance unchanged and in line with analyst estimates.

The economy is in a slowdown; that much is clear. Recent GDP reports indicate the second quarter in a row of near-stagnant 0.6% growth in the U.S. I think it is good that Chambers is being cautious in this environment. It would be much worse to be overly optimistic and then disappoint. I think the company is strong and that the stock deserves to trade higher, but like Chambers, I want to remain cautious. The numbers are good, but Wall Street will need good numbers and better guidance for this stock to go back on the rise. Until then this stock might be stuck in a rut. (For more on using the big picture in your valuations, read What is GDP and why is in so important?)

The Bottom Line
Cisco released impressive numbers on Tuesday that beat Wall Street estimates. The company showed it is still growing, in spite of concerns that it would suffer from a slow U.S. economic environment. I think that Chambers is doing the right thing by remaining cautious, but until Wall Street gets stronger guidance from the CEO, the stock will likely be weighed down.

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Tickers in this Article: CSCO, ALU, JNPR, NT

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