Cisco’s non-GAAP profits came in higher than expected.
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Cisco Systems shares headed lower even though management reported better-than-expected results for its fiscal second quarter and issued solid financial forecasts for the current three-month period.
While the results were strong, expectations had been rising ahead of the announcement, so the figures may have fallen short of so-called whisper numbers—informal forecasts circulated among investors. Cisco shares slumped 5.4% in late trading to $45.90.
For the quarter ended Jan. 23, Cisco (ticker: CSCO) reported revenue of $12 billion, flat with a year ago, and slightly ahead of the Street consensus at $11.9 billion. The company had forecast that revenues would be flat to down 2%. Adjusted profits, not prepared according to generally accepted accounting principles, were 79 cents a share, above both the range of 74 to 76 cents a share management had predicted and the Street consensus at 76 cents.
Cisco said total product orders were up 1% from the year ago quarter.
In an interview with Barron’s late Tuesday, Cisco CEO Chuck Robbins said he thinks the company had a “solid quarter, continuing on a recovery path.” He said that Cisco had improved growth rates from the last quarter in every business segment, noting the return to modest positive growth in the commercial business (which includes small- and medium-size customers) after three-quarters of negative growth that at one point hit -25%.
The company predicted that April quarter revenue will be 3.5% to 5.5% higher than it was a year ago, ahead of the Street’s consensus call for a gain of 3%. Cisco said non-GAAP profits for the quarter are likely to be 80 82 cents a share, in line with estimates at 81 cents.
Product revenue in the quarter was $8.57 billion, ahead of consensus at $8.49 billion. Revenue from infrastructure platforms was $6.39 billion, down 3% from a year ago, but slightly ahead of the $6.2 billion Wall Street expected. Application revenue was $1.35 billion, flat with a year ago, and in line with estimates. Security revenue was $822 million, up 10% from a year earlier, but a little shy of expectations.
Revenue was down 1% in the Americas, up 2% in Europe, Middle East and Africa, and down 4% in the Asia-Pacific, Japan, and China.
Non-GAAP gross margin was 66.9%, up from 66.4% a year earlier.
Cisco said it bought back $801 million of its common stock in the quarter at an average price of $42.82 a share. The company has $9.2 billion remaining on its current repurchase authorization.
“The metrics indicate it was a good quarter,” Robbins said. “Now we have to deliver on Q3, and continue our momentum.”
Robbins noted that the company broke out its “web scale” business for the first time, a reference to the large cloud providers. He said that Cisco had 100% growth in that business in the quarter, and that the cloud is a sector where Cisco is coming from behind and has an opportunity to grow market share. Robbins said that business was strong from traditional cable providers, but a little weak from traditional telcos. Cisco is still at the front end of seeing a benefit from the rollout of 5G wireless networks, Robbins added.
Cisco continues to see double-digit growth in revenues from its WebEx videoconferencing service, Robbins also said, and noted that the company plans to “get aggressive on marketing” in that segment. While the company saw strengthening demand from enterprise verticals, in particular financial services and manufacturing, the enterprise segment’s growth was muted by continued software in segments deeply affected by the pandemic, like travel and retail, the CEO told Barron’s.
Write to Eric J. Savitz at [email protected]
