A month has gone by since the last earnings report for Cisco Systems (CSCO Quick QuoteCSCO - Free Report) . Shares have added about 0.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cisco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cisco's Q2 Earnings Top Estimates, Revenues Up Y/Y

Cisco Systems reported second-quarter fiscal 2022 non-GAAP earnings of 84 cents per share, which beat the Zacks Consensus Estimate by 3.7%. The bottom line increased 6% year over year.

Revenues increased 6.4% year over year to $12.72 billion. The top line was driven by strength across customer markets and revenue growth in all geographies. Revenues beat the consensus mark by 0.6%.

Quarter in Detail

Region-wise, the Americas and the APJC revenues increased 3% and 13% year over year to $7.146 billion and $2.010 billion, respectively. EMEA revenues rose 11% to $3.564 billion.

Service revenues (26.5% of total revenues) decreased 0.6% year over year to $3.37 billion, driven by growth in software and solution-support services.
 
Software revenues were up 6% year over year to $3.8 billion. Software subscription revenues increased 12% to $3 billion. Subscriptions contributed 80% to Cisco’s software revenues.

Annualized recurring revenues or ARR came in at $21.9 billion, up 11% year over year. Product ARR growth was 20% in the quarter under review.

Product revenues (73.5% of total revenues) increased 9.1% on a year-over-year basis to $9.35 billion.

Total product orders rose 30% on a year-over-year basis. In terms of customer segments, enterprise orders were up 37% on a year-over-year basis. Webscale orders grew more than 70% year over year.

Breakup of Product Revenues

Secure, Agile Networks (63.1% of total Product revenues) revenues increased 7% year over year to $5.898 billion.

Hybrid Work (8.4% of Product revenues) revenues declined 9% on a year-over-year basis to $1.067 billion.

End-to-End Security (9.4% of Product revenues) revenues were up 7% to $883 million.

Internet for the Future (14.4% of Product revenues) revenues surged 42% to $1.322 billion.

Optimized Application Experiences (1.9% of Product revenues) revenues were up 12% to 180 million.

Revenues from Other Products decreased 28% to $2 million.

Operating Details

Non-GAAP gross margin contracted 150 basis points (bps) from the year-ago quarter’s level to 65.5%.

On a non-GAAP basis, product gross margin contracted 230 bps to 64.3%. Service gross margin expanded 100 bps to 68.8%.

Non-GAAP operating expenses were $3.96 billion, up 1.7% year over year. As a percentage of revenues, operating expenses contracted 140 bps to 31.2%.

Non-GAAP operating margin was flat year over year at 34.3%.

Balance Sheet and Cash Flow

As of Jan 29, 2022, Cisco’s cash & cash equivalents and investments balance were $21.1 billion compared with $23.3 billion as of Oct 30, 2021.

Total debt (short-term plus long-term) as of Jan 29, 2022, was $11.47 billion compared with $9.50 billion as of Oct 30.

Cash flow from operating activities was $2.5 billion compared with $3.4 billion reported in the prior quarter.

Cisco declared a quarterly dividend of 38 cents per share, up 3%, to be paid on Apr 27, 2022, to all stockholders of record as of the close of business on Apr 6, 2022.

Cisco’s board of directors also approved a $15-billion increase to the authorization of the stock-repurchase program.

In the quarter under review, Cisco returned $6.4 billion to shareholders, including dividend payments of $1.5 billion and share repurchases worth $4.8 billion.

Remaining performance obligations at the end of the fiscal second quarter were $30.5 billion, up 8%. The metric represents total committed non-cancelable future revenues.

Guidance

For third-quarter fiscal 2022, revenues are expected to grow between 3% and 5% on a year-over-year basis.

Non-GAAP operating margin is anticipated between 32.5% and 33.5% for the quarter. Non-GAAP earnings are anticipated between 85 cents and 87 cents per share.

For fiscal 2022, revenues are expected to rise by 5.5-6.5% on a year-over-year basis. Non-GAAP earnings are anticipated between $3.41 and $3.46 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Cisco has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Cisco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.