Cisco Systems, Inc. (CSCO) said Wednesday after the markets closed that its second quarter profit rose 44% from last year, helped by higher sales and better cost control. The company's quarterly earnings per share, excluding items, also came in above analysts' expectations as did its quarterly sales.
The world's largest computer networking gear maker reported GAAP net income for the second quarter of $2.2 billion or $0.40 per share, compared to $1.5 billion or $0.27 per share for the year-ago quarter and $1.8 billion or $0.33 per share in the previous sequential quarter.
Excluding items, non-GAAP net income for the second quarter was $2.6 billion or $0.47 per share, compared to $2.1 billion or $0.37 per share in the prior year quarter and $2.3 billion or $0.43 per share in the prior quarter.
On average, 39 analysts polled by Thomson Reuters expected the company to earn $0.43 per share for the second quarter. Analysts' estimates typically exclude special items.
This marks the first time in five quarters that Cisco's profit has increased year-over-year.
San Jose, California-based Cisco, which makes the routers and switches that direct computer and telecommunications traffic over corporate networks and the Internet, said net sales for the second quarter rose 11% to $11.53 billion from $10.41 billion in the same quarter last year. Second quarter net sales grew 2.4% sequentially. Thirty-eight analysts had a consensus revenue estimate of $11.23 billion for the second quarter.
"We delivered strong performance this quarter with record revenue and earnings per share," said John Chambers, Cisco chairman and CEO. "We are executing well on our three-year plan to drive earnings faster than revenue. Our operational focus continues to yield positive results -- we hit our billion dollar expense reduction a quarter early"
Product sales for the quarter increased 10.7% to $9.12 billion from $8.24 billion a year ago, while services revenue for the quarter grew 11.1% to $2.41 billion from $2.17 billion last year.
Cash flows from operations for the second quarter were $3.1 billion, compared to $2.6 billion for the prior year quarter and $2.3 billion for the prior quarter.
During the second quarter, Cisco repurchased 26 million shares of its common stock for $466 million. In November 2010, Cisco's board of directors authorized up to $10 billion in additional repurchases of its common stock under the stock repurchase program, increasing the authorized amount of aggregate stock repurchases to $82 billion. The remaining authorized amount for stock repurchases under the program as of January 28 was about $8.7 billion with no termination date.
Cisco's balance sheet looked rock solid. The company ended the second quarter with cash and cash equivalents and investment of $46.7 billion, compared to $44.4 billion at the end of first quarter and $44.6 billion at the end of fiscal 2011.
Cisco also said that on February 7, its Board of Directors declared a quarterly dividend of $0.08 per share, a $0.02 increase over the previous quarter's dividend, to be paid on April 25 to all shareholders of record as of the close of business on April 5.
After aggressively pursuing the acquisition-led growth strategy during the last couple of years, diversifying its business and entering consumer markets, Cisco has recently tried to become a leaner and more focused organization. In April, Cisco announced a restructuring of its consumer business, including closing down the Flip video camera business. In May, the company announced changes to its business structure and organization, aiming to enhance customer focus and to simplify its operations. In July, Cisco announced an agreement to sell its set-top box manufacturing facility in Juarez, Mexico, to Foxconn Technology Group.
However, the company has been struggling with rising costs that has threatened to derail its earnings growth. lower profits for four consecutive quarters, including latest one. To reduce costs, Cisco has cut thousands of jobs.
In September, Cisco trimmed its long-term annual revenue growth forecast by more than half. The company now expect sales to grow 5% to 7% annually by 2014, down from its earlier forecast of 12% to 17% growth. Earnings are expected to grow about 7% to 9% in the coming three years, with operating margins in the mid-20s percentage range. Gross profit margin for 2012 is targeted in the range of 60% to 62%.
Cisco is viewed as a technology-industry bellwether because it dominates the market for routers and switches. Since the company's latest results are for the full month of January, instead of December for many of the technology giants, they are also seen as an early indicator of industry trends.
Juniper Networks, Inc. (JNPR), which competes with Cisco in the router industry, last month reported a decline in fourth quarter profit, as lower demand for its computer networking gear impacted revenues that missed Street analysts' estimates. Earnings were further put under pressure by very weak margins. The company also provided a lackluster first quarter outlook that is indicated to miss street estimates.
Cisco shares, which have traded in a range of $13.30 to $22.15 over the past year, closed Wednesday's regular trading session at $20.43, up 23 cents or 1.14%. The stock is currently losing a penny in after hours trading.
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