It has been about a month since the last earnings report for Cisco Systems (CSCO Quick QuoteCSCO - Free Report) . Shares have added about 3.8% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Cisco's Q3 Earnings Top Estimates, Revenues Up Y/Y

Cisco Systems reported third-quarter fiscal 2022 non-GAAP earnings of 87 cents per share, which beat the Zacks Consensus Estimate by 1.16%. The bottom line increased 4.8% year over year.

Revenues inched up 0.2% year over year to $12.84 billion. Revenues lagged the consensus mark by 3.70%.

Quarter in Detail

Region-wise, the Americas revenues increased 3% year over year to $7.64 billion. Revenues from both EMEA and APJC increased 6% each year over year to $3.271 billion and $1.926 billion, respectively.

Service revenues (26.4% of total revenues) decreased 7.6% year over year to $3.39 billion, driven by growth in software and solution-support services.

Annualized recurring revenues (“ARR”) came in at $22.4 billion, up 11% year over year. Product ARR growth was 20% in the quarter under review.
Product revenues (73.6% of total revenues) increased 3.4% on a year-over-year basis to $9.45 billion.

Total product orders rose 8% on a year-over-year basis.

Break Down of Product Revenues

Secure, Agile Networks (62.1% of total Product revenues) revenues increased 7% year over year to $5.869 billion.

Collaboration (12% of Product revenues) revenues declined 7% on a year-over-year basis to $1.132 billion.

End-to-End Security (9.9% of Product revenues) revenues were up 7% to $938 million.

Internet for the Future (14% of Product revenues) revenues climbed 6% to $1.324 billion.

Optimized Application Experiences (1.9% of Product revenues) revenues were up 8% to 183 million.

Revenues from Other Products decreased 58% to $2 million.

Operating Details

Non-GAAP gross margin contracted 60 basis points (bps) from the year-ago quarter’s level to 65.3%.

On a non-GAAP basis, product gross margin contracted 80 bps to 64.1%. Service gross margin expanded 20 bps to 68.9%.

Non-GAAP operating expenses were $3.93 billion, down 5.2% year over year. As a percentage of revenues, operating expenses contracted 170 bps to 30.7%.

Non-GAAP operating margin expanded 110 bps year over year to 34.7%.

Balance Sheet and Cash Flow

As of Apr 30, 2022, Cisco’s cash & cash equivalents and investments balance were $20.1 billion compared with $21.1 billion as of Jan 29, 2022.

Total debt (short-term plus long-term) as of Apr 30, 2022, was $9.42 billion compared with $11.47 billion as of Jan 29, 2022.

Cash flow from operating activities was $3.7 billion compared with $2.5 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.

In the quarter under review, Cisco returned $1.8 billion to shareholders, including dividend payments of $1.6 billion and share repurchases worth $252 million.

Remaining performance obligations (“RPO”) at the end of the fiscal third quarter were $30.2 billion, up 7%, with 54% of this amount to be recognized as revenues over the next 12 months. Product RPO was up 13% and service RPO was up 3%.

Guidance

For fourth-quarter fiscal 2022, revenues are expected to decline between 1% and 5.5% on a year-over-year basis.

Non-GAAP gross margin is anticipated between 64% and 65% for the quarter.

Non-GAAP operating margin is anticipated between 31.5% and 33.5% for the quarter. Non-GAAP earnings are anticipated between 76 cents and 84 cents per share.

For fiscal 2022, revenues are expected to rise by 2-3% on a year-over-year basis. Non-GAAP earnings are anticipated between $3.29 and $3.37 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -12.76% due to these changes.

VGM Scores

At this time, Cisco has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cisco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.