Cisco Beats Earnings, Skids on Sales - Analyst Blog

By Mark Vickery,

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Networking leader Cisco Systems ( CSCO ) reported fiscal Q1 2014 earnings after the bell Wednesday with a slight beat on earnings but a revenue miss of roughly $200 million in the quarter. Cisco posted EPS -- minus stock-based compensation but before non-recurring items -- of 48 cents per share, topping the Zacks Consensus Estimate by a penny and exactly what Zacks ESP had predicted. Sales, on the other hand, came in at $12.1 billion, missing the consensus estimate of $12.3 billion.

Analysts had expected the revenue number to be a high hurdle in the quarter, with a 5% company layoff announced in August which cost the company a charge of over half a billion dollars. Also, Cisco is by now so huge, and with so much business in and through the U.S. federal government, it stood to reason that the shutdown on Capitol Hill in the quarter would have some negative impact.

Further, Cisco today sees lots of competition from other tech giants such as IBM ( IBM ) and Hewlett-Packard ( HPQ ), and as such has taken strides to increase market share versus its competitors or maintain its dominance in other areas. For instance, in the routers/switchers market where Cisco holds a 70% share, the company developed, rolled out and fully bought Insieme, its software defined networking (SDN) solution, to the tune of more than $850 million. It also completed its acquisition of cybersecurity firm Sourcefire and privately-held Composite Software.

We've seen this from several of the tech behemoths during this earnings season -- progressing and modernizing its technology and resources to adapt to an ever-changing technological landscape. But these things take lots of capital, and oftentimes realized profits don't come for several quarters, if at all. That said, Cisco appears to be taking on its challenges steadily; the company has now posted a modest positive earnings surprise in its last 5 quarters.

Analysts had been giving a slight near-term negative outlook ahead of the Q1-14 earnings announcement, with no fewer than 8 downwardly revised estimates for fiscal 2014 in the past 90 days, and 9 downward revisions for fiscal 2015. This had helped lead Cisco to a Zacks #4 Rank (Sell). The company has a longer-term Hold recommendation.

Shares were up a bit over 1% in regular Wednesday trading, but have sunk 3% in the after-market. Cisco shares are up more that 22% year-to-date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CSCO

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