It has been about a month since the last earnings report for Cisco Systems (
CSCO Quick Quote CSCO - Free Report) . Shares have added about 3.4% 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 Q1 Earnings Top Estimates, Revenues Up Y/Y
Cisco Systems 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 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. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Cisco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Cisco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.