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Cisco Systems Inc. (CSCO - Free Report) reported fourth-quarter fiscal 2017 non-GAAP earnings (including stock-based compensation) of 55 cents per share, in line with the Zacks Consensus Estimate.
Excluding stock-based compensation, non-GAAP earnings decreased 3.2% on a year-over-year basis to 61 cents per share, which was within the management’s guided range of 60-62 cents. The decline can be attributed lower revenues, which was partially offset by expanding operating margin.
Revenues declined 4% year over year to $12.13 billion, slightly better than the Zacks Consensus Estimate. Management had anticipated revenues to decline in the range of 6-4% on a year-over-year basis.
In fiscal 2017, Cisco reported earnings of $2.39 per share on revenues of $48 billion.
Shares of Cisco have gained 7% year to date, slightly outperforming the industry’s 5.6% rally.
Top-line Details
Beginning first-quarter fiscal 2018, Cisco will realign its reporting segments into five distinct categories – infrastructure platform, applications, security, services and other.
Cisco Systems, Inc. Price, Consensus and EPS Surprise
In the fourth quarter, on a year-over-year basis, products (74.4% of total revenues) declined 5.5% to $9.03 billion, while services (25.6% of total revenue) increased 0.6% to $3.11 billion. Almost 31% of the revenues were recurring in nature.
Roughly, 11% of the product revenues were recurring, which grew 40% from the year-ago quarter. Revenues from subscriptions now represent 51% of the company’s software revenues, which increased 18% from the year-ago quarter.
Under the Product category, Wireless, Security and Other increased 5%, 3%, and 31%, respectively, on a year-over-year basis. However, this increase was fully offset by weak performance from Switching, NGN Routing, Collaboration, Data Center and Service Provider Video segments which decreased 9%, 9%, 3%, 4% and 10%, respectively.
Wireless growth was driven by strong performance from Meraki as well as the ramp of the company’s 11AC Wave 2 portfolio. Security revenues were driven by strong performance in Unified Threat, Web Security and Advanced Threat, which was partially offset by decline in legacy Firewall products.
The decline in switching revenues was primarily attributed to weakness in Campus, partially offset by growth in the ATI portfolio, which was up 38%. Newly intent-based networking portfolio of the Catalyst 9000 family of switches gained strong adoption within short span of time.
While routing revenues declined due to weakness in enterprise access, datacenter fell from the continued market shift from Blade to Rack. Cisco stated that decline in Unified Communications Endpoints hurt collaboration revenues in the quarter.
Geographically, on a year-over-year basis, revenues from both the Americas and EMEA declined 6%. APJC revenues increased 6% driven by solid growth in India and modest growth in Australia and Japan. Growth in China was affected by tough year-over-year comparisons (due to service provider video business in the year-ago quarter).
Total emerging markets declined 2% while the BRICs plus Mexico went down 2%.
In terms of customer segments, enterprise declined 1%, while service provider dipped 7%. However, commercial and public sector grew 4% and 2%, respectively. Cisco stated that the U.S. federal business has improved, while enterprise and commercial business in the U.K. also showed some recovery.
Security Drove Top-line Growth
Security results were noticeable with double-digit order growth and 49% deferred revenue growth. The next-generation firewall portfolio added 6K new customers in the quarter. Total customer base touched almost 80K at the end of the quarter.
To combat almost 90% increase in cyber-attacks against Internet of Things (IoT) devices over the last year, Cisco launched IoT threat defense solution. This is an extensible, scalable, security architecture created to defend devices in connected healthcare, electric utilities and manufacturing industries.
Strategic Partnerships Extended
During the quarter, Cisco announced an extension of its strategic partnerships with Apple (AAPL - Free Report) , International Business Machines (IBM - Free Report) and Microsoft (MSFT - Free Report) .
As a part of the extension, the company plans to deliver the first enterprise security application on Apple iOS. Cisco is also integrating its security portfolio with IBM's Cognitive Security operations platform.
Cisco-Microsoft relationship deepened in the quarter. The company is implementing a software layer on its datacenter switches. This will provide Microsoft the flexibility to run its operating system on Cisco’s hardware platforms in Azure infrastructure.
Moreover, the companies are collaborating to enable businesses build and host their IoT applications in Microsoft Azure while extending the power of those applications to the edge via Cisco's Fog computing solutions.
Operating Details
Non-GAAP gross margin contracted 100 basis points (bps) from the year-ago quarter to 63.7% in the reported quarter. The contraction can primarily be attributed to higher product gross margin (down 100 bps), which was negatively impacted by higher memory prices.
As percentage of revenues, research and development (R&D), general and administrative (G&A) and sales & marketing (S&M) expenses declined 30 bps, 10 bps and 20 bps, respectively.
Non-GAAP operating expenses as percentage of revenues decreased 110 bps to 32.2% primarily owing to decrease in most of the expense line items.
As a result, operating margin expanded 10 bps to 31.5%. Cisco’s focus on driving cost improvement, operational efficiencies and productivity helped in expanding operating margin.
Acquisitions
Cisco completed the acquisition of MindMeld and advanced analytics team and associated intellectual property (IP) developed by Saggezza.
Cisco also announced the acquisition of Viptela, a privately held company that provides software defined wide area networking products. Moreover, the company announced the acquisition of Observable Networks, a privately held company that offers cloud-native network forensics security applications delivered as a service.
The addition of Observable Networks to the portfolio expands the capabilities of the company’s Stealthwatch Solution into the cloud. Cisco can now provide greater support and compliance for applications deployed in Amazon web services as well as Microsoft Azure environments.
Both acquisitions (Viptela and Observable Networks) closed in first-quarter fiscal 2018.
Balance Sheet and Cash Flow
Cisco exited the fourth quarter with cash & cash equivalents and investments balance of almost $70.5 billion compared with $68 billion in the prior-year quarter. Cash & cash equivalents and investments available in the United States at the end of quarter were $3 billion.
Cisco repurchased approximately 38 million shares of common stock for an aggregate purchase price of $1.2 billion. As of Jul 29, the remaining authorized amount under current share repurchase program is approximately $11.7 billion.
Guidance
For first-quarter fiscal 2018, revenues are expected to decline in the range of 3-1% on a year-over-year basis. Non-GAAP earnings are anticipated to be in the range 59-61 cents per share.
The Zacks Consensus Estimate was pegged at 55 cents on revenue estimates of $12.09 billion.
Gross margin is expected to be in the range of 63-64%, while operating margin is anticipated between 29.5% and 30.5% for the quarter.
Our Take
We believe that Cisco’s expanding footprint in the rapidly growing security market looks promising. The company’s security solutions continue to add customers. Additionally, the company’s extended partnerships with Apple, IBM and Microsoft will help it to gain significant traction in the cloud and Internet of Things (IoT) market space in the long run.
However, weakness in the switching, routing and data center businesses is significant headwind. Moreover, ongoing transition to subscription-based model will continue to hurt top line. Further, weakness in the service provider business segment and intense competition from the likes of Huawei, Juniper and Arista Networks are other major concerns.
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
This proven stock-picking system is grounded on a single big idea that can be fortune shaping and life changing. You can apply it to your portfolio starting today.
Image: Bigstock
Cisco (CSCO) Meets Q4 Earnings Estimates, Revenues Beat
Cisco Systems Inc. (CSCO - Free Report) reported fourth-quarter fiscal 2017 non-GAAP earnings (including stock-based compensation) of 55 cents per share, in line with the Zacks Consensus Estimate.
Excluding stock-based compensation, non-GAAP earnings decreased 3.2% on a year-over-year basis to 61 cents per share, which was within the management’s guided range of 60-62 cents. The decline can be attributed lower revenues, which was partially offset by expanding operating margin.
Revenues declined 4% year over year to $12.13 billion, slightly better than the Zacks Consensus Estimate. Management had anticipated revenues to decline in the range of 6-4% on a year-over-year basis.
In fiscal 2017, Cisco reported earnings of $2.39 per share on revenues of $48 billion.
Shares of Cisco have gained 7% year to date, slightly outperforming the industry’s 5.6% rally.
Top-line Details
Beginning first-quarter fiscal 2018, Cisco will realign its reporting segments into five distinct categories – infrastructure platform, applications, security, services and other.
Cisco Systems, Inc. Price, Consensus and EPS Surprise
Cisco Systems, Inc. Price, Consensus and EPS Surprise | Cisco Systems, Inc. Quote
In the fourth quarter, on a year-over-year basis, products (74.4% of total revenues) declined 5.5% to $9.03 billion, while services (25.6% of total revenue) increased 0.6% to $3.11 billion. Almost 31% of the revenues were recurring in nature.
Roughly, 11% of the product revenues were recurring, which grew 40% from the year-ago quarter. Revenues from subscriptions now represent 51% of the company’s software revenues, which increased 18% from the year-ago quarter.
Under the Product category, Wireless, Security and Other increased 5%, 3%, and 31%, respectively, on a year-over-year basis. However, this increase was fully offset by weak performance from Switching, NGN Routing, Collaboration, Data Center and Service Provider Video segments which decreased 9%, 9%, 3%, 4% and 10%, respectively.
Wireless growth was driven by strong performance from Meraki as well as the ramp of the company’s 11AC Wave 2 portfolio. Security revenues were driven by strong performance in Unified Threat, Web Security and Advanced Threat, which was partially offset by decline in legacy Firewall products.
The decline in switching revenues was primarily attributed to weakness in Campus, partially offset by growth in the ATI portfolio, which was up 38%. Newly intent-based networking portfolio of the Catalyst 9000 family of switches gained strong adoption within short span of time.
While routing revenues declined due to weakness in enterprise access, datacenter fell from the continued market shift from Blade to Rack. Cisco stated that decline in Unified Communications Endpoints hurt collaboration revenues in the quarter.
Geographically, on a year-over-year basis, revenues from both the Americas and EMEA declined 6%. APJC revenues increased 6% driven by solid growth in India and modest growth in Australia and Japan. Growth in China was affected by tough year-over-year comparisons (due to service provider video business in the year-ago quarter).
Total emerging markets declined 2% while the BRICs plus Mexico went down 2%.
In terms of customer segments, enterprise declined 1%, while service provider dipped 7%. However, commercial and public sector grew 4% and 2%, respectively. Cisco stated that the U.S. federal business has improved, while enterprise and commercial business in the U.K. also showed some recovery.
Security Drove Top-line Growth
Security results were noticeable with double-digit order growth and 49% deferred revenue growth. The next-generation firewall portfolio added 6K new customers in the quarter. Total customer base touched almost 80K at the end of the quarter.
To combat almost 90% increase in cyber-attacks against Internet of Things (IoT) devices over the last year, Cisco launched IoT threat defense solution. This is an extensible, scalable, security architecture created to defend devices in connected healthcare, electric utilities and manufacturing industries.
Strategic Partnerships Extended
During the quarter, Cisco announced an extension of its strategic partnerships with Apple (AAPL - Free Report) , International Business Machines (IBM - Free Report) and Microsoft (MSFT - Free Report) .
As a part of the extension, the company plans to deliver the first enterprise security application on Apple iOS. Cisco is also integrating its security portfolio with IBM's Cognitive Security operations platform.
Cisco-Microsoft relationship deepened in the quarter. The company is implementing a software layer on its datacenter switches. This will provide Microsoft the flexibility to run its operating system on Cisco’s hardware platforms in Azure infrastructure.
Moreover, the companies are collaborating to enable businesses build and host their IoT applications in Microsoft Azure while extending the power of those applications to the edge via Cisco's Fog computing solutions.
Operating Details
Non-GAAP gross margin contracted 100 basis points (bps) from the year-ago quarter to 63.7% in the reported quarter. The contraction can primarily be attributed to higher product gross margin (down 100 bps), which was negatively impacted by higher memory prices.
As percentage of revenues, research and development (R&D), general and administrative (G&A) and sales & marketing (S&M) expenses declined 30 bps, 10 bps and 20 bps, respectively.
Non-GAAP operating expenses as percentage of revenues decreased 110 bps to 32.2% primarily owing to decrease in most of the expense line items.
As a result, operating margin expanded 10 bps to 31.5%. Cisco’s focus on driving cost improvement, operational efficiencies and productivity helped in expanding operating margin.
Acquisitions
Cisco completed the acquisition of MindMeld and advanced analytics team and associated intellectual property (IP) developed by Saggezza.
Cisco also announced the acquisition of Viptela, a privately held company that provides software defined wide area networking products. Moreover, the company announced the acquisition of Observable Networks, a privately held company that offers cloud-native network forensics security applications delivered as a service.
The addition of Observable Networks to the portfolio expands the capabilities of the company’s Stealthwatch Solution into the cloud. Cisco can now provide greater support and compliance for applications deployed in Amazon web services as well as Microsoft Azure environments.
Both acquisitions (Viptela and Observable Networks) closed in first-quarter fiscal 2018.
Balance Sheet and Cash Flow
Cisco exited the fourth quarter with cash & cash equivalents and investments balance of almost $70.5 billion compared with $68 billion in the prior-year quarter. Cash & cash equivalents and investments available in the United States at the end of quarter were $3 billion.
Cisco repurchased approximately 38 million shares of common stock for an aggregate purchase price of $1.2 billion. As of Jul 29, the remaining authorized amount under current share repurchase program is approximately $11.7 billion.
Guidance
For first-quarter fiscal 2018, revenues are expected to decline in the range of 3-1% on a year-over-year basis. Non-GAAP earnings are anticipated to be in the range 59-61 cents per share.
The Zacks Consensus Estimate was pegged at 55 cents on revenue estimates of $12.09 billion.
Gross margin is expected to be in the range of 63-64%, while operating margin is anticipated between 29.5% and 30.5% for the quarter.
Our Take
We believe that Cisco’s expanding footprint in the rapidly growing security market looks promising. The company’s security solutions continue to add customers. Additionally, the company’s extended partnerships with Apple, IBM and Microsoft will help it to gain significant traction in the cloud and Internet of Things (IoT) market space in the long run.
However, weakness in the switching, routing and data center businesses is significant headwind. Moreover, ongoing transition to subscription-based model will continue to hurt top line. Further, weakness in the service provider business segment and intense competition from the likes of Huawei, Juniper and Arista Networks are other major concerns.
Cisco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. You can see the complete list of today’s Zacks #1 Rank stocks here.
One Simple Trading Idea
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
This proven stock-picking system is grounded on a single big idea that can be fortune shaping and life changing. You can apply it to your portfolio starting today.
Learn more >>