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Cisco Profit Tops Estimate; Outlook Weak

Cisco Profit Tops Estimate; Outlook Weak
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Cisco Systems, Inc. (CSCO: Quote), the world's largest computer networking gear maker, said Wednesday after the markets closed that its third quarter profit rose 20% from last year, helped by higher sales and better cost control.

The company's quarterly earnings per share, excluding items, just managed to beat analysts' estimate as did its quarterly sales.

During a conference call with analysts, the company projected 2% to 5% year-over-year sales growth and adjusted earnings of $0.44 to $0.46 per share for the fourth quarter. Analysts polled by Thomson Reuters currently expect earnings of $0.49 per share on revenue growth of 7.1% for the quarter.

As a result, Cisco shares are currently losing 8.57% in after hours trading after closing the day's regular trading session at $18.78, up 7 cents. The shares trade in a 52-week range of $13.30 to $21.30.

The latest quarter marks Cisco's second consecutive quarter of higher profit following four quarters of year-over-year profit declines.

The company has been struggling with rising costs that has threatened to derail its earnings growth. To reduce costs, Cisco has cut thousands of jobs.

"We delivered solid results this quarter with record revenue and non-GAAP earnings per share," said John Chambers, Cisco chairman and CEO. "We are successfully executing against our long-term strategic plan of growing profit faster than revenue, and in a cautious IT spending environment, we continue to outperform our competitors."

For the third quarter ended April 28, 2012, the San Jose, California-based company reported net income for the third quarter of $2.2 billion or $0.40 per share, compared to $1.8 billion or $0.33 per share for the year-ago quarter.

Excluding items, adjusted net income for the third quarter was $2.6 billion or $0.48 per share, compared to $2.3 billion or $0.42 per share in the prior year quarter.

On average, 37 analysts expected the company to earn $0.47 per share for the third quarter. Analysts' estimates typically exclude special items.

Cisco, which makes the routers and switches that direct computer and telecommunications traffic over corporate networks and the Internet, said net sales for the third quarter rose 6.6% to $11.59 billion from $10.87 billion in the same quarter last year. Thirty-eight analysts had a consensus revenue estimate of $11.57 billion for the third quarter.

Product sales for the quarter increased 4.6% to $9.1 billion, while services revenue for the quarter grew 13.6% to $2.5 billion.

During the third quarter, Cisco repurchased 27 million shares of its common stock for $550 million. As of April 28, the company had repurchased and retired 3.6 billion shares of its common stock for an aggregate purchase price of about $74.3 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under that program is about $7.7 billion with no termination date.

Cisco's balance sheet looked rock solid. The company ended the third quarter with cash and cash equivalents and investment of $48.4 billion, compared to $46.7 billion at the end of the previous quarter and $44.6 billion at the end of fiscal 2011.

Cisco is aggressively pursuing the acquisition-led growth strategy, diversifying its business and entering consumer markets. In March, the company announced its intent to acquire NDS Group Ltd., a provider of video software and content security solutions. The same month, Cisco completed the acquisition of privately held Lightwire, Inc., which develops advanced optical interconnect technology for high-speed networking applications. Cisco has also acquired privately held ClearAccess, Inc. Last week, Cisco said it would buy privately held Truviso, Inc., a real-time network data analysis and reporting software maker.

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 April, instead of March 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 87% drop in first quarter profit, hurt by lower revenue and weaker margins. However, the company's quarterly earnings per share, excluding items, came in above analysts' expectations as did its quarterly revenue. At the same time, the company gave a disappointing outlook for the second quarter.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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