Cisco tops Wall Street predictions on earning in FQ3

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Cisco revenue down in FQ3, but beats profit expectations.
Image: Cisco

Cisco System’s fiscal third-quarter results revealed the coronavirus pandemic negatively impacted the company’s revenue, but its earnings per share (EPS) came in stronger than expected. Though best known is a networking gear supplier, its services income buoyed its profitability last period.

The corporation also offered FQ4 guidance that indicates its trend of down revenue, but stable earnings will continue.

Cisco’s FQ3 Performance

In the three months ending April 25, Cisco made $12 billion, an 8 percent decrease from the $13 billion it made in F Q3 2019. The hardware company also reported adjusted net income of $3.4 billion and EPS of $0.79, down 2 percent and up 1 percent from last year, respectively. Although Wall Street accurately forecast the firm’s revenue, its robust EPS came as a surprise.

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Cisco’s better-than-expected results are seemingly connected to an uptick in its services revenue. In the quarter previous, the segment generated $2.3 billion for the firm, a year-over-year increase of 4.6 percent. During the same frame, the corporation’s product sales fell by 11.5 percent annually, probably as a reaction to COVID-19.

That outcome is notable because Cisco’s products provide a return on investment (ROI) of 63 percent while its services ROI is 67.8.

The San Jose, California corporation’s FQ3 results indicate its portfolio diversification efforts have paid off.

Cisco’s FQ4 Outlook

For the fiscal fourth quarter, Cisco predicts an 8.5 to 11.5 percent yearly revenue shortfall, which translates to sales of $12.26 billion to $11.86 billion. The corporation also offered an adjusted EPS range of $0.72 to $0.74, a reduction of 13.25 to 10.84 percent from 2019. Bloomberg notes the firm’s projections exceed Wall Street’s consensus income predictions.

Cisco tipped its anticipation of a sales downturn in April when it announced a new financing initiative in response to COVID-19’s economic impact. The company’s Business Resiliency Program gives its customers a 90-day payment holiday and a 95 percent purchase cost deferment until January 2021. The special offer includes all of the brand’s hardware and software and is available to its entire partner ecosystem.

While the corporation’s Business Resiliency Program may impact its near-term revenue generation, it’s a strong long-term bet. With large companies like Facebook, Google, and Twitter extended their work-from-home policies, organizations will need to upgrade their hardware to manage higher rates of traffic indefinitely. Cisco’s new financing terms ensures organizations can make those enhancements made now instead of after a confidence shaking system crash.

The company’s initiative will also likely engender strong brand loyalty that will pay dividends for years to come.

Amid an unprecedented global health crisis, Cisco made generous charitable donations, increased its subscription-as-a-service holdings, and provided robust support for its clients. The firm’s commendable corporate citizenship and agility indicate it will weather its current headwinds quite capably.

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