In my opinion, the only way shareholders will achieve a turnaround at Cisco is by forcing the retirement of Cisco Chairman and CEO John Chambers through the replacement of Chambers' handpicked Board of Directors in a shake-up.
"For Q1 FY '14, we're managing the business to account for a slow and consistent recovery.
"With that in mind, we expect revenue growth to be in the range of 3% to 5% on a year-over-year basis.
"In terms of 3% to 5% guidance that is at the low end of what we said before. We were at 6, 5, 5, 6 this last quarter, last year for all four quarters.
"We're very comfortable with the 5% to 7% over the long run."
"In Q1 FY '14 Cisco delivered revenue growth of 2% year-over-year.
"This level of revenue growth in Q1, while not inconsistent with some of our large peers was below our expectations for the quarter.
"As we look to Q2 FY'14, we do not anticipate material improvement in our order growth. This is impacting our revenue guidance for Q2. Given our orders performance in Q1, our backlog is significantly lower than we anticipated. As a point reference, approximately 70% of our product revenue is dependent on new orders each quarter.
"With that in mind, we expect total revenue to decline in the range of 8% to 10% on a year-over-year basis.
Wall Street's panicked response:
Bank of America Merrill Lynch:
"Your guidance is very low if I got the numbers right, it's about 11% sequentially - 11% down sequentially for revenue. Then I went back to 2000 -- October 2000 and I've never seen such a low number outside of 2008 or 2009, I am looking at it January 2009, and at that time the world was about to collapse, January 2009. That's when all the problems hit the financial system.
"And I am wondering why are you guiding so low for next quarter?"
Barclays:
"Do you feel that there's something more going on, this -- we're all floored by your guidance here?"
UBS:
"I was just trying to understand your guidance again in the context of your deferred revenue growth. I mean, it seems like you got pretty strong growth both sequentially and year-over-year in product revenue growth - product deferred revenue growth.
"So just want to understand again, I'm really perplexed by the guidance here.
"I understand some of the pain points you identified, but maybe if you could just shed some light there."
RBC Capital Markets:
"If I think about Cisco as a company has a lot of product, a lot of regional breadth and your portfolio approach typically gets you balanced, so if one region or segment underperforms, that's usually offset by some -- another region or segment that is outperforming.
"So we're not getting that historic offset and instead we're getting this deterioration. So just wondering if you feel that this is maybe a structural change to the switching and routing in data networking market.
"And it does sound as if it will take several quarters at least to refill the drained backlog, was there some consideration to reset your 5 to 7 long-term top line growth rate and should we also plan for some more OpEx cuts as you protect your earnings?"
How Cisco's situation is now comparable to Hershey's past situation:
Make no mistake about it, Cisco's Q1'FY14 results and Q2'FY14 guidance are now comparable to the past situation Hershey found itself in.
For example, the Board of Directors of The Hershey Company sent the following threatening and very disrespectful 4-page letter to their controlling shareholder, the Hershey Trust Company (I mean, talk about a Board of Directors who have NO RESPECT for their controlling shareholder):
Roy Zimmerman, Chairman of the Board of the Hershey Trust Company (Hershey's controlling shareholder), sent the following 4-page confidential letter to Hershey's Board of Directors in response to the Hershey Board's letter above:
The following key points from Zimmerman's letter should be of keen interest to investors (I mean, one can only wonder what Cisco is perhaps omitting from its Q2'FY14 guidance):
"There has been in the past two years a 3.2 market share point shift vs. M&M/Mars (a combination of a loss of 1.3 share points by the Company and a gain of 1.9 share points by Mars)."
"The Company's net sales (excluding acquisitions) are at their current levels principally through price increases and weight reductions. Mr. West indicated at the October 2nd joint meeting that the limit has been reached for further price increases, and, in fact, price reductions may be necessary."
"The shift in focus from major core brands items to new products (including 'limited editions/in-and-out' items) has resulted in poundage or volume reduction in core brands, -20% in some cases. Getting major core brand volume back is a major challenge, in particular, given a re-invigorated Mars."
"The Company dramatically cut advertising and other direct brand expenditures (in the tens of millions of dollars) in the 2003-2005 period, thus underinvesting in core brands, but allowing for the bottom line to grow.
"As one analyst noted, the Company could be perceived as 'over-earning' during this period ('over-earning' not used in an accounting but performance sense)."
"The Company has taken four restructurings since 2001, resulting in aggregate charges in excess of $1 billion and the loss of approximately 3,000 jobs (including the Supply Chain Transformation, but excluding jobs that will be created in Mexico).
"Many of the job losses are related to the reduction in overall poundage as opposed to pure efficiency improvements. This reduction, by Company management's own admission, is in turn related to the unsustainability of the 'limited editions, in-and-out' marketing strategy. With a sustainable marketing strategy, job losses at this level may have been avoided."
"Company management has acknowledged product quality and taste issues, indicating the plant managers let the guard-rails of quality get too far apart."
"The Company has missed its earnings targets for the six quarters ending 2007 and given numerous earnings warnings during this period, including most recently last week."
"All of this has occurred on the current Board's 'watch,' and the Trust is deeply concerned the Board regards this as a long track record of strong performance."
In conclusion, Hershey shareholders need to know that the leader of Hershey's controlling stockholder, Roy Zimmerman, kicked butt and took names when it was necessary, with the end result being huge wealth creation for Hershey's shareholders.
As the current Chairman of the Board of The Hershey Company, Hershey Trustee Jim Nevels deserves extra special praise and recognition for carefully watching over the operational and financial performance of The Hershey Company.
So here are the 2-heroes that investors need to personally thank for increasing the value of The Hershey Company:
In my opinion, the only way shareholders will achieve a turnaround at Cisco is by forcing the retirement of Cisco Chairman and CEO John Chambers through the replacement of Chambers' handpicked Board of Directors in a shake-up.
Finally, imagine the letter Cisco shareholders would get from Cisco's potty-mouthed lead director Carol Bartz should they ask Cisco's Board of Directors be held both responsible as well as accountable for Cisco's poor performance by submitting their resignations.
Full disclosure:
On July 2, 1963, 7-years after my grandfather H.B. Reese's death in May 1956, my father Charles Richard Reese and his 5-brothers (Bob, John, Ed, Ralph and H.B. Reese, Jr.) merged the H.B. Reese Candy Company with the Hershey Chocolate Corporation in a tax free stock-for-stock merger:
The 6 Reese Brothers received 666,316 shares of Hershey common stock valued in 1963 at $23.5 million. After the 1963 merger, the Reese Brothers owned such a large portion of Hershey's Public Float, they were restricted by an investment letter from selling any Hershey shares. Over the past 50-years Hershey's stock has split so many times, the original 666,316 Hershey shares owned by the 6 Reese Brothers now represent 16 million Hershey shares valued well in excess of $1 billion and paying annual cash dividends of $31 million:
According to Advertising Age and Euromonitor International, the Reese's Brand was the #1 ranked candy brand in the United States with 2012 U.S. sales of $2.603 billion. Additionally, the Reese's Brand was the #4 ranked candy brand globally with 2012 sales of $2.679 billion.
That's right, Reese's was ranked #4 globally with only a mere $76 million of its sales outside the United States.
Furthermore, the non-union H.B. Reese Candy Company manufactures the Kit Kat in the U.S., which was the #4 ranked candy brand in the United States with 2012 sales of $948 million.
Finally, my cousin Robert Reese is a former President of the Hershey Trust Company:
