Analysis

Cisco Surprises in Q3 2024 Earnings Release

Despite a sharp revenue drop, Cisco topped its earnings guidance in Q3 2024.

Cisco Systems, Inc. (CSCO -2.57%), a veteran of networking hardware, software, and telecommunications equipment, shared its Q3 FY 2024 earnings results on May 15.

Most notably, Cisco posted revenue of $12.7 billion, surpassing management’s upper guidance of $12.3 billion. This was accompanied by adjusted earnings per share (EPS) of $0.88, exceeding the expected $0.86, though they fell 12% year over year.

However, the company saw a 13% drop in overall revenue from $14.6 billion the previous year and a 41% decrease in GAAP EPS to $0.46, impacted by a $0.09 negative influence from the Splunk acquisition.

Metric Q3 FY 2024 Management’s Guidance Range Q3 FY 2023 YoY % Change
Revenue (billion) $12.7 $12.1 – $12.3 $14.6 (13%)
GAAP EPS $0.46 $0.51 – $0.56 $0.78 (41%)
Non-GAAP EPS $0.88 $0.84 – $0.86 $1.00 (12%)
Non-GAAP Gross Margin 68.3% 66% – 67% 65.2% 3.1 pp

Data sources: Results and management guidance from the company’s SEC filings. YoY = Year over Year. PP = percentage points.

Company overview and focus areas

Cisco Systems, known for pioneering networking and telecommunications solutions, hosts a comprehensive product portfolio including hardware, software, and services. Recently, it has prioritized a handful of technology strategies:

  • Driving revenue growth with products like Cisco Security Cloud and its AI-driven security offerings. The company reported a 36% increase in security product revenue this quarter.
  • Seeking wide adoption of the Webex suite amid competitive pressure, introducing new devices and security features to enhance hybrid work capabilities.
  • Observability solutions saw 27% revenue growth thanks to the application monitoring platform AppDynamics and the network observation tools of ThousandEyes.
  • Continuous investments in technologies like high-capacity optical networking solutions and the Silicon One unified hardware architecture, aimed at future-proofing each Cisco client’s network performance.

Quarterly highlights

During Q3, Cisco communicated some notable achievements and challenges.

Revenue came in at $12.7 billion, slightly beating the upper end of management’s guidance but landing 13% below the $14.6 billion seen in the year-ago period

GAAP EPS of $0.46 missed the lower end of management’s guidance range due to a $0.09 negative impact from the Splunk acquisition. Non-GAAP EPS slightly exceeded upper guidance levels at $0.88, reflecting effective cost management strategies.

Non-GAAP gross margin improved to 68.3%, well above the guidance range. This highlights efficient pricing strategies, especially within the non-hardware-centric sectors such as security and collaboration.

One standout was the security product segment, which experienced notable 36% growth. The Splunk acquisition added $413 million to revenues in this segment.

Revenues declined across key regions. Americas was down 15%, EMEA (Europe, Middle East, and Africa) down 9%, and APJC (Asia Pacific, Japan, and China) down 12%, indicating broad-based pressure.

Cisco also declared a dividend of $0.40 per share, consistent with the payout announced three months earlier and up from $0.39 per share in the same period a year ago.

Looking ahead

For the upcoming quarter, Cisco forecasts revenue between $13.4 billion and $13.6 billion. Non-GAAP EPS should land in the range of $0.84 to $0.86. Management also projects a non-GAAP gross margin between 66.5% and 67.5% and an operating margin range of approximately 32%.

Revenue predictions for FY 2024 stand between $53.6 billion and $53.8 billion. Non-GAAP EPS was targeted between $3.69 and $3.71.

As Cisco continues executing its strategic plans, investors should keep an eye on its profitability in software-centric areas and geographic revenue trends. Steady progress in hybrid work and security solutions are also crucial for maintaining leadership and growth in the tech industry.

JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool has a disclosure policy.

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