The Dow Jones Industrial Average (DJINDICES:^DJI) headed lower Wednesday morning, down around 1% at 11 a.m. EDT. Federal Reserve Chair Jerome Powell warned that the recession caused by the novel coronavirus pandemic could lead to lasting damage to the productive capacity of the economy. Powell also indicated that the economic response so far "may not be the final chapter," given the unprecedented uncertainty.
Tech giant Cisco Systems (NASDAQ:CSCO) will report its quarterly results later today, giving investors an idea of how the enterprise-focused company has navigated the crisis. Home improvement retailer Home Depot (NYSE:HD) will report next week, but an analyst gave the stock a boost by praising strong demand in the do-it-yourself channel.
Cisco faces a test after market close
Networking hardware giant Cisco is set to report its fiscal third-quarter results after the market closes today. Like many enterprise-facing technology companies, Cisco has likely seen some customers push back orders amid the pandemic. However, strength in the collaboration business, particularly video conferencing, as well as potentially strong demand from data center and service provider customers as they increase capacity, could help offset weak demand elsewhere.
Analysts are expecting Cisco to report revenue of $11.88 billion, down 8.6% from $13.0 billion during the prior-year period. Adjusted earnings per share of $0.71 is expected, down from $0.78 in the third quarter of last year.
Those estimates differ from Cisco's guidance, which was issued in February. The company called for a revenue decline of 1.5% to 3.5%, along with adjusted EPS between $0.79 and $0.81. Things have changed dramatically since February, with the pandemic effectively shutting down large swathes of the U.S. economy. It's unclear whether any short-term boost in demand driven by increased working from home will be enough for Cisco to hit its guidance.
Cisco stock has bounced back after tumbling through mid-March, although it remains well below its 52-week high. Shares are up roughly 34% from their March low; they're down roughly 28% from the high reached last summer.
Shares of Cisco were down about 0.4% Wednesday morning as investors prepared for the company's report. A better-than-expected performance and outlook could easily send the stock soaring, but that's far from a guarantee.
DIY sales strong for Home Depot
UBS is optimistic on home improvement retailers like Home Depot, even as the housing market is disrupted by the pandemic. The bank found that the do-it-yourself channel was strong during the first quarter, easily outperforming the professional channel. UBS believes the solid performance was driven by a combination of consumers spending more time at home and stock-up behavior as stay-at-home orders were being put in place.
Additionally, since big-box home improvement stores were deemed essential services in some places, they likely gained share in the DIY market. On the flip side, reducing how many customers could be in the store at once, eliminating promotions, and limiting services and installations likely hurt sales during the first quarter.
UBS found that the professional channel was soft, which is a bigger deal for Home Depot than for rival Lowe's. Home Depot depends on pros for around 45% of its sales, according to UBS, compared to around 25% for Lowe's. UBS saw particularly weak demand from pros in categories related to home interiors, which could be a sign that renovation activity is slowing down.
Home Depot is scheduled to report its first-quarter results before the market opens on Tuesday, May 19. There are a lot of moving parts, and the retailer's outlook is unlikely to impress given the state of the economy and the likely temporary nature of any DIY sales surge. Home Depot stock was up about 0.6% Wednesday morning.