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Cisco says it will top estimates

The surprise disclosure was made after an executive inadvertently and prematurely sent employees an e-mail about the quarter.

Cisco Systems said Wednesday that its second-quarter sales and pro forma earnings will top estimates--a disclosure made after an executive inadvertently sent employees an e-mail describing the company's report "in positive terms."

Hours before the company was expected to report its second-quarter results, the networking giant said in a release that it would beat both earnings and revenue targets. According to First Call, the company is expected to report earnings of 5 cents a share on revenue of $4.54 billion.

That disclosure won't shock many analysts who for the most part expected Cisco to top estimates. San Jose, Calif.-based Cisco spilled the beans on its results after an executive "prematurely and inadvertently" sent an e-mail to "a large number of Cisco employees" Tuesday that cast the company's earnings in a positive light.

Cisco shares closed Wednesday up 11 cents, or 0.6 percent, to $18.61.

"To minimize any potential confusion, the results we announce this afternoon will exceed the current consensus estimates of earnings per share and revenues for the second quarter of our fiscal year," said Cisco Chief Financial Officer Larry Carter. "We felt it was necessary to disclose this information publicly, given the broad internal distribution of the communication."

According to Cisco, the memo noted that the company's booked orders, for products only, were $3.9 billion vs. an internal goal of $3.75 billion for the quarter. If the memo had leaked out, most Wall Street observers could have connected the dots between the booked orders and Cisco's revenue.

Indeed, Merrill Lynch analyst Samuel Wilson projected that Cisco would have earnings of 6 cents a share on revenue around $4.6 billion to $4.7 billion based on the bookings data.

Cisco added that the memo didn't give specific information about the company's financials. Cisco also didn't reveal anything more about its financial results, noting that it will report full results after the market closes.

Most analysts are expecting a cautious outlook for Cisco's third quarter. "Given the uncertainty of both service provider and corporate IT spending (a reflection of the economy), visibility remains reduced. Because of this, Cisco will likely be cautiously optimistic on the near-term outlook," Wilson said. "We expect the company to report positive business trends, but hedge their view accordingly."

Steven Kamman, an analyst at CIBC World Markets, said Cisco will face "tough hunting" in the enterprise market because of lower IT budgets, noting that its telecommunications customers are paring capital spending.

Analysts also expect the company to detail how it accounts for all of its transactions. Cisco took an "excess inventory benefit" in the first quarter, a move that reversed a hefty charge last year and helped trim its losses under generally accepted accounting principles.

"Given the recent frenzy around accounting, we believe Cisco will continue to offer insight into how it accounts for all transactions," Wilson said.