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Cisco's (CSCO) Q1 Earnings Top Estimates, Revenues Up Y/Y

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Cisco Systems (CSCO - Free Report) reported first-quarter fiscal 2023 non-GAAP earnings of 86 cents per share, which beat the Zacks Consensus Estimate by 2.38%. The bottom line increased 4.9% year over year.

Revenues increased 5.7% year over year to $13.63 billion and beat the consensus mark by 2.32%.

Cisco’s fiscal first-quarter results benefited from easing supply chain conditions, greater availability of components and redesigning of some products.

The company witnessed strong demand for its products, including the Catalyst 9000 family, Cisco 8000, Wireless, Meraki, ThousandEyes and Duo.

Quarter in Detail

Region-wise, America’s revenues increased 5% year over year to $7.91 billion. EMEA revenues increased 11% from the year-ago quarter to $3.68 billion. APJC revenues were unchanged year over year to $2.04 billion.
 

Cisco Systems, Inc. Price, Consensus and EPS Surprise

Cisco Systems, Inc. Price, Consensus and EPS Surprise

Cisco Systems, Inc. price-consensus-eps-surprise-chart | Cisco Systems, Inc. Quote

 

Cisco witnessed cautious spending in European markets due to a dramatic increase in energy costs and market volatility. However, Cisco believes this situation provides growth opportunities for its low-power-consuming technologies, including IoT, Silicon One and Powerover Ethernet.

Service revenues (24.8% of total revenues) inched up 0.5% year over year to $3.39 billion.

Annualized recurring revenues came in at $22.9 billion, up 8% year over year.

Product revenues (75.2% of total revenues) increased 7.5% on a year-over-year basis to $10.25 billion.

Break Down of Product Revenues

Secure, Agile Networks (65.2% of total Product revenues) revenues increased 12% year over year to $6.09 billion.

Cisco witnessed strong demand for its network solutions led by digital transformation, hybrid cloud, AI and ML workloads.

Collaboration (10.6% of Product revenues) revenues decreased 2% on a year-over-year basis to $1.09 billion. Cisco announced more than 40 innovations to power hybrid work and deliver exceptional customer experiences.

The company announced a partnership with Microsoft to bring Microsoft teams to Cisco meeting room devices.

End-to-End Security (9.5% of Product revenues) revenues were up 9% to $971 million. Cisco introduced new data loss prevention, firewall and Zero Trust capabilities across its portfolio in the reported quarter.

Internet for the Future (12.8% of Product revenues) revenues decreased 5% to $1.31 billion.

Optimized Application Experiences (1.9% of Product revenues) revenues were up 7% to $193 million.

Revenues from Other Products decreased 47% to $2 million.

Operating Details

Non-GAAP gross margin expanded 50 basis points (bps) from the year-ago quarter’s level to 63%.

On a non-GAAP basis, the product gross margin contracted 40 bps to 61%. Service gross margin expanded 360 bps to 68.8%.

Non-GAAP operating expenses were $4.24 billion, down 8% year over year. As a percentage of revenues, operating expenses contracted 460 bps to 31.1%.

Non-GAAP operating margin contracted 140 bps year over year to 31.8%.

Balance Sheet and Cash Flow

As of Oct 29, 2022, Cisco’s cash & cash equivalents and investments balance were $19.78 billion compared with $19.3 billion as of Jul 30, 2022.

Total debt (short-term plus long-term) as of Oct 29, 2022, was $8.88 billion compared with $9.52 billion as of Jul 30, 2022.

Cash flow from operating activities was $3.96 billion, higher than the $3.7 billion reported in the previous quarter.

Cisco paid a quarterly dividend of 38 cents per share and returned $1.6 billion to shareholders through buybacks.

Remaining performance obligations (“RPO”) at the end of the fiscal first quarter were $30.9 billion, up 3%, with 53% of this amount to be recognized as revenues over the next 12 months. Product RPO was up 5% and service RPO was down 1%.

Guidance

For second-quarter fiscal 2023, revenues are expected to grow between 4.5% and 6.5% on a year-over-year basis.

Non-GAAP gross margin is anticipated between 63% and 64% for the quarter.

Non-GAAP operating margin is anticipated between 31.5% and 32.5% for the quarter. Non-GAAP earnings are anticipated between 84 cents and 86 cents per share.

For fiscal 2023, revenues are expected to rise 4.5-6.5% on a year-over-year basis. Non-GAAP earnings are anticipated between $3.51 and $3.58 per share.

Zacks Rank & Upcoming Earnings to Watch

Cisco currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Computer & Technology sector scheduled to report their earnings soon are Agilent (A - Free Report) , Bilibili (BILI - Free Report) and Coupa Software (COUP - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Agilent shares have outperformed the sector year to date, declining 8.9%. A is scheduled to release its fourth-quarter fiscal 2022 results on Nov 21.

Bilibili shares have underperformed the sector year to date, down 80.9%. BILI is scheduled to release its third-quarter 2022 results on Nov 29.

Coupa Software shares have underperformed the sector year to date, declining 77%. COUP is set to report its third-quarter fiscal 2023 results on Dec 12.

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