It has been about a month since the last earnings report for Cisco Systems (
CSCO Quick Quote CSCO - Free Report) . Shares have lost about 1.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cisco due for a breakout? 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 drivers.
Cisco Q2 Earnings Top Estimates, Revenues Rise Y/Y
Cisco Systems reported second-quarter fiscal 2023 non-GAAP earnings of 88 cents per share, which beat the Zacks Consensus Estimate by 2.33%. The bottom line increased 4.8% year over year.
Revenues increased 6.9% year over year to $13.59 billion and beat the consensus mark by 1.18%. Quarter in Detail
Region-wise, America’s rose 9% year over year to $7.83 billion. EMEA revenues increased 5% from the year-ago quarter to $3.73 billion. APJC revenues climbed 1% year over year to $2.04 billion.
Service revenues (24.8% of total revenues) moved up 2.1% year over year to $3.44 billion. Product revenues (74.7% of total revenues) increased 8.6% on a year-over-year basis to $10.16 billion. Annualized recurring revenues were $23.3 billion, up 6% year over year and product ARR increased 11% year over year. Break Down of Product Revenues
Secure, Agile Networks (66.4% of total Product revenues) revenues increased 14% year over year to $6.75 billion.
Collaboration (9.4% of Product revenues) revenues decreased 10% on a year-over-year basis to $958 million. End-to-End Security (9.3% of Product revenues) revenues were up 7% to $943 million. Internet for the Future (12.9% of Product revenues) revenues decreased 1% to $1.31 billion. Optimized Application Experiences (2% of Product revenues) revenues were up 11% to $199 million. Revenues from Other Products increased 25% to $3 million. Operating Details
The non-GAAP gross margin contracted 160 basis points (bps) from the year-ago quarter’s level to 63.9%.
On a non-GAAP basis, the product gross margin contracted 210 bps to 62.1%. The service gross margin expanded 30 bps to 69.1%. Non-GAAP operating expenses were $4.27 billion, up 7.8% year over year. As a percentage of revenues, operating expenses expanded 30 bps to 31.4%. The non-GAAP operating margin contracted 180 bps year over year to 32.5%. Balance Sheet and Cash Flow
As of Jan 28, 2023, Cisco’s cash and cash equivalents, and investments balance were $22.05 billion compared with $19.78 billion as of Oct 29, 2022.
Total debt (short-term plus long-term) as of Jan 28, 2023, was $8.89 billion compared with $8.88 billion as of Oct 29, 2022. Cash flow from operating activities was $4.7 billion, higher than the $3.96 billion reported in the previous quarter. Cisco paid out a quarterly dividend of 39 cents per share and returned $2.8 billion to shareholders through buybacks. The remaining performance obligations (“RPO”) at the end of the fiscal second quarter were $31.8 billion, up 4%, with 53% of this amount to be recognized as revenues over the next 12 months. Product RPO was up 7% and service RPO was up 2%. Guidance
For third-quarter fiscal 2023, revenues are expected to grow between 11% and 13% on a year-over-year basis.
The non-GAAP gross margin is anticipated between 63.5% and 64.5% for the quarter. The non-GAAP operating margin is anticipated between 33% and 34% for the quarter. Non-GAAP earnings are anticipated between 96 cents and 98 cents per share. For fiscal 2023, revenues are expected to rise 9-10.5% on a year-over-year basis. Non-GAAP earnings are anticipated between $3.73 and $3.78 per share. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
The consensus estimate has shifted 8.86% due to these changes.
At this time, Cisco has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cisco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.