Cisco reported better-than-expected financial earnings for the first fiscal year of 2017; however, the gloomy guidance for the second quarter sent the stock in defensive track. Shares of Cisco have been moderately steady before the earnings report, recovering from the rough path caused by the critical vulnerability found in facility events response system. Business experts turned optimistic over the future of US economy in the hands of the president-elect Donald Trump due to his expertise in the sector. Nonetheless, business-friendly promises and expectations couldn’t take Cisco away from its current direction. Is Cisco in trouble?
Q1 Financial Result
The San Jose, California based multi tech company surpassed the Wall Street expectation on its first quarter earnings report. From the anticipated revenue of $12.33 billion and EPS of $0.59, the company announced $12.4 billion revenue and EPS of $0.61. CEO Chuck Robbins lauded the company’s performance despite a challenging global business environment.
During the conference call, Mr. Robbins said that they performed well in their priority areas. "We are leading our customers in their digital transition by providing them with highly secure, automated, and intelligent solutions in the ways they want to consume them. Our innovation pipeline is robust and we are well positioned for the future."
Another CISCO Executive, Mr. Kelly Kramer, added that the company executed well and first quarter delivering strong profitable growth. “The ultimate solid progress in our transition to more software and subscription based models. We’re committed to making the key strategic moves in disciplined investments to drive long-term financial performance and deliver shareholder value.”
Cisco managed to have 11 percent growth in its security revenue, the fourth consecutive quarter of double digit growth as it continues to be highly competitive through their integrated architecture approach and remarkable portfolio. Since Cisco remains to be the only company with security product revenue exceeding $2 billion on an annual basis with double digit acceleration, the massive customers’ subscription was only a typical impact of their effort. In connection with this, Cisco has just added 5,300 firewall customers as they see ongoing traction with their next generation firewall revenue growth for over 35 percent.
As the cloud computing business continues to expand in the market, Cisco recently launched their enhanced AMP for endpoints a SaaS based cloud managed security solution and made a partnership with Salesforce’s Lighting platform to expand its cloud strategy. Meanwhile, the customers have fairly adopted the CISCO ASI family of data center networking products. This sector accumulated 33 percent revenue growth to an annual revenue rate of $3 billion. It seems the investment of the company in the data center portfolio brought positive outcome.
The Bad News
Amid the positive notion of the first quarter outcome of the company, Mr. Kramer burst the excitement as he disclosed the outlook for the next quarter. Cisco is expecting a revenue decline of revenue in the range of minus 2 percent to minus 4 percent year-over-year normalized to exclude the SP Video’s CPE business for Q2.
“We anticipate non-GAAP gross margin rate to be in the range of 63% to 64% and the non-GAAP operating margin rate is expected to be in the range of 29% to 30%. The non-GAAP tax provision rate is expected to be 22%. Non-GAAP earnings per share is expected to be in the range of $0.55 to $0.57.”
The majority of the market analysts had expected a non-GAAP EPS of $0.59 and revenue to reach around $12.15 billion. Market players were disappointed with the outlook of the company which drove the stock in the defensive track eventually.
Stock Market Movement
Shares of Cisco lost 0.41 percent after the market closed on Wednesday as it settled to $31.57. The stock had a session high of 31.89 and a session low of 31.51 with a market capitalization of $160.35 billion. Cisco has a price earnings ratio of 14.95 and a dividend yield of 3.29 percent.
In the pre-market session earlier, Cisco declined significantly by 5.07 percent as the investors weighed in the result and guidance provided by the company. Evidently, the company focuses more on investment and collaboration to strengthen its core. With huge market capitalization, the company still affords to lure investors.
Cisco keeps their faith in the coming policies to be implemented by the new administration. The company sees the positive impact of the proposed tax reform in the business sector, considering Trump is no amateur in the business world. On the other hand, Trump has not announced yet a definite plan for the tech industry.