Cisco Posts Solid 4th Quarter, But Waves Caution Flag: Why Investors Shouldn’t Worry

Cisco shares fell by as much as 7% after hours on Wednesday after the company reported weaker-than-expected guidance. It had already dropped 4% during the day on a disastrous day for stocks.

Here’s what the company reported:

• Earnings: 83 cents per share, excluding certain items, vs. 82 cents per share as expected by analysts, according to Refinitiv.
• Revenue: $13.43 billion, vs. $13.38 billion as expected by analysts, according to Refinitiv.

Revenue grew 6 percent on an annualized basis in the quarter, according to a statement. See the full news item on CNBC.

Analyst Take: Let’s start with the positive. As Cisco has been doing pretty consistently as of late, they once again exceeded the expectations of Wall Street. I expected this result and that is exactly what we got. 

In terms of the forward looking guidance, I think that is to be somewhat expected as the tumultuous trade headwinds continue to plague markets. Frankly, I would be concerned if Chuck Robbins wasn’t planning for some softness related to those conditions; China in particular. 

It’s worth noting that for both the full fiscal year and the quarter YoY, the company showed growth in both revenue and earnings per share. Here’s a quick look at how those numbers broke down. 

• Q4 Results: ¹
  • Revenue: $13.4 billion
    • Growth of 6 percent year over year
  • Earnings per Share: GAAP: $0.51; Non-GAAP: $0.83
    • Non-GAAP EPS increased 19 percent year over year
• FY 2019 Results: ¹
  • Revenue: $51.7 billion
    • Growth of 7 percent year over year
  • Earnings per Share: GAAP: $2.61; Non-GAAP: $3.10
    • Non-GAAP EPS increased 20% year over year
• Q1 Guidance: ¹
  • Revenue: 0% percent to 2 percent growth year over year
  • Earnings per Share: GAAP: $0.64 to $0.69; Non-GAAP: $0.80 to $0.82

Additionally, Cisco had material growth of its product, service and overall gross margins for this fiscal year versus the last fiscal year. This is definitely an important item to note.

Core Business Areas Are Growing 

I also took notice deeper into the company’s financials the overall performance of the company’s itemized product groups. The financials specifically call out Infrastructure, Applications and Security as their major categories. They also have an “other” category that appears to be a bit of a catch all, but doesn’t offer a lot of specifics. 

For the fiscal year, Infrastructure grew 7 percent, Applications grew 15 percent and Security grew at 16 percent versus FY18. 

Necessary Caution, But I’m Optimistic about Cisco

Today was a tough day to report given the NYSE fell 800+ points at the closing bell. So the post earnings sell off that came on the heels of Cisco’s lowered guidance was likely partially related to timing and not just the guidance. 

Cisco has been a steady performer. The company has been making smart acquisitions and it has an extremely sound foundation on their service business. Despite the softer guidance, I wouldn’t be surprised to see the company outperform significantly in the next quarter, which will give the stock another bump. This will become especially likely if trade conditions improve and we have seen the volatility there but I have a feeling if market conditions worsen, Trump will be likely to relax certain fiscal policies that are hindering it. However, even if conditions stay the same or worsen, Robbins has been steadfast to prepare the company for such an instance, and I’m confident the negatives will be small making Cisco likely to continue to outperform. 

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The original version of this article was first published on Futurum Research.