) reported third-quarter 2013 earnings of 48 cents a share,
beating the Zacks Consensus Estimate of 45 cents on higher
revenues and lower-than-expected operating expenses. The adjusted
earnings per share exclude one-time items but include stock-based
Revenues increased 5.2% year over year and 0.8% sequentially
to $12.2 billion. Products (78.2% of total revenue) were up 5.5%
year over year to $9.6 billion. Services (21.8% of total revenue)
jumped 8.0% year over year to $2.7 billion.
Revenues decreased year over year across most of the
geographies except Americas. The Americas region increased 10.2%
year over year, while Asia-Pacific, Japan and China collectively
known as APJC decreased 0.2% from the year-ago quarter. Europe,
the Middle East and Africa (EMEA) also declined 0.9% on a
year-over-year basis due to continued macroeconomic challenges in
Product Revenues by Category
Switching (29.5% of total revenue), Collaboration (8.3% of
total revenue), Security (2.7% of total revenue), and Other
Products revenues declined 2.0%,1.0%, 4.0% and 41.0% year over
year, respectively. NGN Routing, which accounted for 17.5% of
total revenue, was flat year over year.
However, this decline was fully offset by strong performances
from Service Provider Video (10.6% of total revenue), Data Center
(4.2% of total revenue), Wireless (4.3% to total revenue) and
Service (21.8% of total revenue) segments, which increased 30.0%,
77.0%, 27.0%, 7.0%, respectively.
Cisco's total product orders in the quarter were up 4% year
over year. The Americas region saw the strongest growth at 7%,
APJC orders increased 1% while EMEA and Russia declined 6% from
the year-ago quarter (consistent with broad market trends).
In the APJC region, Japan again witnessed strong growth, while
China continues to see challenges related to the business
Reported gross margin for the quarter was 61.5%, down 60 basis
points (bps) from 62.1% in the comparable year-ago quarter due to
an unfavorable product mix.
Cisco's operating expenses of $4.5 billion were 4.7% higher
than $4.3 billion incurred in the year-ago quarter. However, all
three expenses, research & development, general &
administrative and sales & marketing declined as a percentage
of sales from the year-ago quarters. The net result was an
operating margin of 23.8%, down 30 bps from 24.1% in the year-ago
On a GAAP basis, Cisco recorded a net profit of $2.5 billion
or 46 cents per share compared with $2.2 billion or 40 cents per
share in the year-ago quarter. On a pro forma basis, Cisco
generated adjusted net profit of $2.59 billion or earnings per
share of 48 cents per share in the last quarter compared with
$2.34 billion or 43 cents in the year-ago quarter.
Our pro forma figure excludes certain one-time items but
includes stock-based compensation expenses.
Cisco ended the quarter with cash and investments balance of
$47.4 billion, up $1.0 billion during the quarter. Trade
receivables were $4.94 billion, up from $4.46 billion in the
The company generated operating cash flow of over $3.1 billion
and spent $1.8 billion on share repurchases and dividends.
Share Repurchase & Dividend
During the quarter, Cisco repurchased approximately 41 million
shares of common stock under the stock repurchase program at an
average price of $20.85 per share for an aggregate purchase price
of $860 million.
The company paid a cash dividend of $0.17 per common share, or
For the fourth quarter of fiscal 2013, Cisco expects revenues
to increase in the range of 4% to 7% on a year-over-year basis.
Non-GAAP gross margin is expected to be 61%-62% and non-GAAP
operating margin is expected to be 27.5%-28.5% of revenues. The
company expects a non-GAAP tax rate of 21%, yielding non-GAAP
earnings of 50 to 52 cents per share. GAAP earnings are expected
in the range of 7 to 10 cents.
Cisco reported strong third-quarter results and its outlook
remains positive. Both the top and bottom-line results exceeded
the prior-year figures.
It is apparent that Cisco's focus on various growth businesses
including cloud computing, mobile, data center, and others is
paying off. Additionally, Cisco's strategy of pursuing growth
opportunities in international markets has helped to deliver
positive results. Cisco is already the best entrenched company
across the world and despite growing competition from several
smaller players, the company appears to be holding its own.
Order growth in the last quarter was quite encouraging and the
trend is reflective of Cisco's superior strategy and innovation.
Increasing strength in data center and wireless businesses will
help to maintain the company's strength.
Additionally, the focus on new products and acquisitions
resulted in continued market share gains. In this quarter, the
company completed the divestiture of Linksys, continued NDS
integration and announced two more acquisitions in order to
deliver top-line growth and profitability.
Hewlett Packard Company (
and the Chinese company Huawei have manufacturing operations in
low-cost countries, which make them more competitive. They are
also interested in sacrificing margins for market share gains.
This remains a major concern for Cisco in the near term.
Currently, Cisco carries a Zacks Rank #4 (Sell). Other stocks
that have been performing well and are worth a look include
), both with a Zacks Rank #2 (Buy).
CISCO SYSTEMS (CSCO): Free Stock Analysis
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HEWLETT PACKARD (HPQ): Free Stock Analysis
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