UPDATED 18:27 EDT / FEBRUARY 15 2023

INFRA

Cisco’s stock rises on solid guidance, earnings and revenue beat

Cisco Systems Inc. beat expectations for its fiscal second-quarter financial results today and raised its full-year guidance, sending its shares up slightly in extended trading today.

The networking giant reported earnings before certain costs such as stock compensation of 88 cents per share, beating analysts’ consensus estimate of 86 cents. Revenue for the period rose 7%, to $13.59 billion, ahead of the $13.43 billion forecast. Overall, Cisco’s net income dropped by around 7% to $2.77 billion.

Cisco Chief Executive Chuck Robbins (pictured) hailed the company’s results, saying in a statement that fiscal 2023 is “shaping up to be a great year.”

In a conference call with analysts, Robbins explained that although the supply of some components used in the company’s hardware products remains constrained, it has seen a big overall improvement in the situation. Cisco has been hit hard by supply constraints ever since the COVID-19 pandemic emerged three years ago, with shortages of components such as semiconductors limiting its ability to fulfill customer’s orders.

“Based on the sequentials that we saw, demand remains stable,” he said, though he admitted that some sales cycles are still longer than usual.

Despite these improvements, Cisco Chief Financial Officer Scott Herren said, the company has accumulated a bigger backlog of orders compared with a year earlier. He added that its backlog for both hardware and software is “considerably higher” than usual, thanks to the ongoing supply issues.

“We continue to have very low order cancellation rates, which remain below pre-pandemic levels,” Herren added.

During the quarter, Cisco’s public-sector business did better than it has done historically, Robbins said. Meanwhile, he added, in the service provider segment, customers have been adjusting to the better delivery of Cisco’s products.

Cisco’s largest business segment, Secure, Agile Networks, which includes its main product line of networking switches, delivered $6.75 billion in revenue during the quarter. That was up 14% from a year ago and higher than the $6.52 billion forecast by analysts. The Internet for the Future business, which includes routed optical networking hardware, added $1.31 billion in sales, down 1% from a year earlier and just below the consensus estimate of $1.32 billion. As for the Collaboration business, which includes Webex, revenue there dropped 10%, to $958 million, below Wall Street’s forecast of $1.06 billion.

Constellation Research Inc. analyst Holger Mueller said today’s results show that Cisco has found a way to generate strong growth again, at least within its core business segment, overcoming both external and internal headwinds.

“Despite this, Cisco’s costs grew faster than its revenue did, and so its profits are down compared to last year,” Mueller added. “For now, investors can count on the company growing, but they’ll be looking closely to see what Robbins does to rein in those growing costs.”

Looking to the third quarter, Cisco said it expects adjusted earnings of between 96 and 98 cents per share on revenue growth of between 11% and 13%. Wall Street analysts had earlier forecast earnings of just 89 cents per share on revenue of $13.58 billion, implying revenue growth of just 6%.

Cisco also raised its full-year guidance, saying it now expects earnings per share of between $3.73 and $3.78, with revenue growing by 9% to 10.5%. Both of those figures are well ahead of Wall Street’s targets.

Charles King of Pund-IT Inc. said Cisco delivered good news for shareholders overall, with solid growth in its core products and focus areas and an optimistic outlook.

“In a way, Cisco is following in the footsteps of other enterprise focused vendors, including IBM and Oracle. which have performed better than many expected, demonstrating strength in sales to large businesses and deflecting some of the pessimism many have about larger economic issues,” King added. “Not all of Cisco’s news was entirely positive, though. Lagging sales in Internet of the Future and Communications may suggest heightened competition or unwillingness among customers to invest in unconventional technologies.”

Investors were happy enough with the results, with Cisco’s stock rising 2% in extended trading, adding to a 1.5% gain during the regular trading session.

Photo: Fortune Brainstorm TECH/Flickr

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