What Did Cisco Systems Do (or Fail to Do) to Deserve This Beating?

Cisco Systems Inc. (NASDAQ: CSCO) reported fourth-fiscal-quarter and full-year 2019 results after markets closed Wednesday evening. The networking giant reported adjusted quarterly earnings per share (EPS) of $0.83 on revenues of $13.43 billion. In the same period a year ago, Cisco reported EPS of $0.70 on revenues of $12.84 billion. Fourth-quarter results compare to the consensus estimates for EPS of $0.82 on revenues of $13.39 billion.

For the full year, Cisco reported EPS of $3.10 and revenues of $51.9 billion compared with EPS of $2.60 and revenues of $49.33 billion in 2018. Analysts were looking for EPS of $3.08 and revenues of $51.84 billion.

Wednesday’s momentary yield-curve inversion rattle investors who have responded by shaving about 3% of all three major indexes. Cisco, one of the Dow 30 stocks, was no exception, taking a haircut of 4% on Wednesday.

Chairman and CEO Chuck Robbins commented:

We are executing well in a dynamic environment, delivering tremendous innovation across our portfolio and extending our market leadership. We are committed to providing our customers ongoing value through differentiated solutions, and we are well positioned to take advantage of the long-term growth opportunities ahead.

In its fiscal 2020 first-quarter outlook, Cisco it expects revenue to be flat to up 2% year over year and adjusted EPS in the range of $0.80 to $0.82. Non-GAAP gross margin is tabbed at 64% to 65% (compared to 63.9% in the fourth quarter of 2019) and operating margin is expected to come in at 32% to 33% (versus 32.6% in the fourth quarter).

Cash flow in fiscal 2019 totaled $15.8 billion, up 16% compared with $13.7 billion in the prior year.

Cisco returned $6 billion to shareholders in the fourth quarter through share buybacks of about $4.5 billion and a cash dividend of $0.35 per share (totaling $1.5 billion).

The company’s quarterly results were just barely enough to exceed estimates, but a narrow hit is no different from a big miss these days. The first-quarter outlook reflects little to no growth and the U.S. trade imbroglio with China is not likely to help Cisco. For the year, sales in the company’s Asia-Pacific/Japan/China business unit rose 3% to $7.85 billion but fourth-quarter sales were down 4% to $2 billion.

Shares are getting hammered again in the after-hours session, trading down around 6.6% at $47.27 after closing the regular session at $50.61. The stock’s 52-week range is $40.25 to $58.26 and the 12-month consensus price target is $58.91.