Cisco Manages To Sneak Past Estimates, Margin Pressure Lives (CSCO)

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Cisco Systems, Inc. (NASDAQ: CSCO) is out with earnings and it is not as dire as the market has warned you about from peer earnings.  The networking equipment giant reported $0.40 in non-GAAP EPS and $11.2 billion in sales.  Thomson Reuters had estimates of $0.38 EPS and $10.98 billion in sales.  On a net basis after items,m Cisco earned $0.22 EPS.  GAAP net income was $1.2 billion and non-GAAP net income was $2.2 billion.

John Chambers is trying to talk up the “significant progress” on its action plan to position Cisco for the next stage of growth and profitability.  He went on to note, ” …you will see a very focused, agile, lean and aggressive company…”

Cash flow (or “caishe flow” per Chambers) from operations was $2.8 billion for the fourth quarter, down from $3.0 billion sequentially and down from $3.2 billion a year ago.

Cash and cash equivalents came to $44.6 billion at the end of the reporting period.  That compares to $43.4 billion a quarter ago and $39.9 billion a year ago.

Cisco is still willing to buy back its stock endlessly.  During the fourth quarter it bought back some 95 million shares at an average of $15.85 per share.  During he last year the company repurchased 351 million shares at an average price of $19.36 per share for a total of $6.8 billion.  The company has now bought back approximately $71.8 billion since the inception of the stock repurchase program and at the end of the last quarter it had authorization to spend roughly $10.2 billion more in buybacks.  (Dear Mr. Chambers: YOU ARE WASTING SHAREHOLDER MONEY!)

The company further noted that Days sales outstanding, or DSO) were 38 days, versus 37 days one quarter back and versus 41 days a year earlier.  Non-GAAP inventory turns were 11.4 in the fourth quarter versus 10.3 a quarter earlier and versus 12.1 a year earlier.

Gross margin came to 61.2% of total net sales, down from 62.6% a year earlier.  Our take is that gross margin is going to continue to suffer at Cisco.  If the company wants to win more business and win more of that unified business that it sought, the only logical move is ‘tweaking’ prices for products and services.

As a reminder, until John Chambers gives guidance in his conference call this needs to be considered unfinished business.  Shares closed down 2.3% at $13.73 today and shares appear to be up about 2.1$ at $14.08 in the after-hours.  The stock’s 52-week low is $13.30 to $24.60.

JON C. OGG