SAN JOSE - Cisco Systems Inc (NASDAQ:CSCO)., the leading San Jose-based network equipment maker, has reported a strong fiscal first-quarter performance that surpassed Wall Street's expectations. The company announced a profit of $3.64 billion, equivalent to 89 cents per share. After adjustments for one-time gains and costs, the earnings stood at $1.11 per share, which is notably higher than the average analysts' estimate of $1.03 per share from a Zacks Investment Research survey.
The tech giant also exceeded revenue expectations, posting $14.67 billion for the quarter against the forecasted $14.61 billion by Zacks analysts. However, despite this strong performance, Cisco has had to lower its full-year revenue and profit forecasts due to declining demand for their networking equipment, causing an approximately 11% drop in their shares after market hours on Wednesday.
Cisco has been grappling with supply chain issues and a post-pandemic demand downturn, prompting a shift towards software solutions like cybersecurity. In September, as part of their diversification plan and to tap into the AI revolution, Cisco agreed to buy cybersecurity firm Splunk (NASDAQ:SPLK) for US$28 billion.
Despite these challenges, Cisco anticipates its fiscal second-quarter earnings to be in the range of 82 to 84 cents per share with revenue projections of $12.6 billion to $12.8 billion, below analysts' expectations. For the full year, the company expects earnings between $3.87 and $3.93 per share and revenues to land between $53.8 billion and $55 billion.
However, it's worth noting that there was a slowdown in new product orders in Q1 as customers focused on installing and implementing existing products, resulting in a backlog of one to two quarters' worth of shipped orders. This led to lower-than-expected revenue forecasts of $53.8-$55.0 billion for the full year and $12.6-$12.8 billion for Q2. In contrast, Juniper Networks (NYSE:JNPR) and Arista Networks (NYSE:ANET), Cisco's rivals, recorded positive results due to robust enterprise spending.
Despite these challenges and a previous annual adjusted per-share earnings forecast of US$4.01 to US$4.08, CFO Scott Herren anticipates a resurgence in order growth in H2. The company confirmed that shipment lead times and backlog have largely normalized, which may signal a potential recovery in the upcoming quarters. During a post-earnings call Today, Cisco executives confirmed the resolution of most supply chain constraints and the resumption of normal shipment times. Despite the slowdown, Cisco outperformed Q1 estimates with earnings per share at $1.11.
InvestingPro Insights
InvestingPro's real-time data and insights provide a deeper understanding of Cisco Systems Inc.'s financial performance. With a market capitalization of $215.81 billion and a P/E ratio of 17.3 as of the end of 2023, Cisco is a significant player in the Communications Equipment industry.
InvestingPro Tips highlight Cisco's strong financial health, showing high earnings quality as its free cash flow exceeds net income. Additionally, the company has been experiencing accelerating revenue growth, evident in the 10.55% increase in the last twelve months of 2023. Another noteworthy point is Cisco's ability to yield high returns on invested capital, making it a potentially profitable investment.
Moreover, Cisco's stockholders benefit from high returns on book equity and the company's commendable practice of maintaining dividend payments for 13 consecutive years. This is supported by a dividend yield of 2.93% and a dividend growth of 2.63% in the last twelve months of 2023.
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