A month has gone by since the last earnings report for Cisco Systems (CSCO). Shares have added about 1.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cisco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cisco Q1 Earnings Top Estimates, Revenues Fall Y/Y
Cisco Systems reported first-quarter fiscal 2025 non-GAAP earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 4.6%. However, the figure decreased 18% year over year.
CSCO’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average earnings surprise being 4.14%.
Revenues of $13.8 billion beat the Zacks Consensus Estimate by 0.57%. The top line decreased 5.6% year over year.
CSCO’s Top Line Affected by Sluggish Networking Revenues
Cisco has been suffering from sluggish networking sales, primarily due to lackluster demand from telecommunication and cable services providers as well as stiff competition. Excess inventory with customers has dampened growth.
Revenues from Networking in first-quarter fiscal 2025 were $6.75 billion, having decreased 23% on a year-over-basis.
In first-quarter 2025, CSCO expanded its collaboration portfolio with the Webex AI Agent, AI Agent Studio and Cisco AI Assistant features for the Webex Contact Center. The solutions utilize advanced conversational intelligence and automation to improve customer satisfaction.
Collaboration revenues fell 3% year over year and were reported to be $1.09 billion. The decline was attributed to the on-prem Webex Suite and collaboration devices, partially offset by growth in CSCO’s contact center and CPaaS offerings.
Observability revenues were $258 million and grew 36% year over year, driven by ThousandEyes and Splunk Observability.
Cisco is benefiting from strong security growth, driven by robust demand for solutions like XDR, Secure Access and Multicloud Defense suites.
Security revenues doubled year over year to $2.02 billion, primarily driven by growth in Cisco’s threat intelligence, detection and response offerings like Splunk and SASE.
Total Product revenues in first-quarter fiscal 2025 were $10.11 billion, comprising 73.1% of Cisco’s total revenues. On a year-over-year basis, product revenues decreased 9.2%.
Service Revenues were $3.7 billion, comprising 26.9% of Cisco’s total revenues. On a year-over-year basis, service revenues increased 5.6%.
Annualized Recurring Revenues (ARR) for the quarter were $29.9 billion, up 22% on a year- over-year basis, with product ARR growth of 42%.
Region-wise, Americas contributed 59.6% of total revenues, followed by EMEA (Europe, Middle East, and Africa) and APJC (Asia Pacific Japan China), with respective contributions of 25.9% and 14.5%.
CSCO’s Operating Expenses Rise Y/Y
Non-GAAP gross margin was 69.3%, which contracted 2.6% year over year.
On a non-GAAP basis, the product gross margin decreased 590 basis points (bps) to 50.4%. Service gross margin increased 760 bps to 18.9%.
In first-quarter fiscal 2025, Cisco reported total non-GAAP operating expenses of $4.87 billion, up 9% from the prior-year quarter. As a percentage of revenues, the figure expanded to 35.2% from 30.5% in the year-ago quarter.
Research & development (R&D) expenses increased 19.5% year over year to $2.29 billion. As a percentage of revenues, R&D expenses increased 350 bps to 16.5%.
Sales & marketing (S&M) expenses increased 9.8% year over year to $2.75 billion. As a percentage of revenues, S&M increased 280 bps to 19.9%.
General & administrative (G&A) expenses increased 18.3% year over year to $795 million. As a percentage of revenues, G&A increased 120 bps to 5.7%.
Consequently, CSCO reported a non-GAAP operating income of $4.72 billion, down 12.1% from the year-ago quarter.
CSCO’s Balance Sheet Details
As of Oct. 26, 2024, cash and cash equivalents and investments totaled $18.67 billion, which increased from $17.85 billion as of July 27, 2024.
Total debt, as of Oct. 26, 2024, was $31.99 billion, up from $30.96 billion as of July 27, 2024.
The remaining performance obligations (RPO) at the end of the fiscal first quarter of 2025 were $40 billion, up 15%, with 51% of the amount to be recognized as revenues over the following 12 months.
In the first quarter of fiscal 2025, CSCO returned $3.6 billion to stockholders through share buybacks and dividends. It repurchased approximately 40 million shares of common stock for an aggregate price of $2 billion. The share repurchase program has $3.2 billion remaining under authorization.
CSCO’s Q2 2025 Guidance
For second-quarter fiscal 2025, Cisco expects non-GAAP earnings between 89 cents and 91 cents per share.
Revenues are expected be in the range of $13.75 billion and $13.95 billion.
Non-GAAP gross margin is expected to be between 68% and 69%. Non-GAAP operating margin is anticipated to be between 33.5% and 34.5%.
Non-GAAP effective tax rate is expected to be approximately 19%.
The Zacks Consensus Estimate for CSCO’s second-quarter fiscal 2025 revenues is pegged at $13.66 billion, indicating year-over-year growth of 6.81%. The consensus mark for earnings is pegged at 87 cents per share, unchanged over the past 60 days.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, Cisco has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Cisco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Cisco is part of the Zacks Computer - Networking industry. Over the past month, NETGEAR, Inc. (NTGR), a stock from the same industry, has gained 5.1%. The company reported its results for the quarter ended September 2024 more than a month ago.
NETGEAR reported revenues of $182.85 million in the last reported quarter, representing a year-over-year change of -7.6%. EPS of $0.17 for the same period compares with $0.23 a year ago.
For the current quarter, NETGEAR is expected to post a loss of $0.25 per share, indicating a change of -377.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -4.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for NETGEAR. Also, the stock has a VGM Score of A.
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