Second quarter earnings season has largely come and gone, but a few remaining technology giants will weigh in with their most recent quarterly results this week. Below is an overview of what to expect, as well as an overview on a recent and impressive dividend increase.
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Credit-rating firm Moody's offered its take on recent developments at networking technology giant Cisco Systems (Nasdaq:CSCO) on Monday. It characterized Cisco's announcement to increase its dividend by 75% as a "whopping" boost to its payout. Furthermore, it didn't see the rise, which will result in an additional $1.3 billion in annual dividend payment to $3 billion, as a negative to its credit rating. In its estimates, the new payment will account for 27% of Cisco's discretionary cash flow, which is synonymous with free cash flow and defined as operating cash flows less capital expenditures.
After the increase, Moody's estimated that Cisco will have the fourth-largest annual dividend payout among the large tech firms. The current leaders are Apple Corp (Nasdaq:AAPL) at $10 billion annually, Microsoft (Nasdaq:MSFT) at $6.7 billion, Intel (Nasdaq:INTC) at $4.2 billion and International Business Machines (NYSE:IBM) at $3.9 billion. Overall, Moody's is favorable on these large firms and noted that the current level of dividend payouts constitutes a small percentage of discretionary cash flow, as compared to other industry leaders.
On Tuesday, electronics retailing giant Best Buy (NYSE:BBY) is set to release its latest round of quarterly earnings. Analysts currently project earnings of 31 cents, which would represent a decline of more than 30% from last year's quarter. Sales projections currently stand at $10.6 billion. Analysts and investors will be watching the results with great interest. In recent weeks, Best Buy has seen its CEO ousted and an aggressive bid by founder Richard Schulze to take the company private. Operationally, the firm is facing serious challenges from online rivals including Amazon (Nasdaq:AMZN), which are beating it on costs given these companies don't have to invest in physical (and costly) retail locations.
Computer, printer and technology services titan Hewlett-Packard (NYSE:HPQ) will also report on Tuesday. HP has been working to regain investor credibility and has another opportunity to demonstrate that sales and profit trends have steadied over the last quarter. Analysts still project a slight sales decline of 3.5% to just over $30 billion, and the earnings decline should be more severe at around 11%. Archrival Dell (Nasdaq:DELL) reports the following day and is having a tougher time than its larger rival. Analysts currently project a top-line decline of more than 6% and for sales to fall to below $15 billion. Profits could fall around 17%, if Dell hits its profit target of 45 cents per share.
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The Bottom Line
This week's earnings results will indicate the extent to which more mature tech firms are losing out to newer rivals. Best Buy, HP and Dell remain firmly profitably, but their growth trends are losing out to nimbler competitors that have embraced more compelling online business models and tablets, as oppose to HP and Dell desktop and laptop computers.
At the time of writing Ryan C. Fuhrmann was long shares of Cisco, Microsoft, HP and IBM (since 2007) but did not own shares in any other company mentioned in this article.