Earnings Preview: How the new fiscal year is shaping up for Cisco (CSCO)

For Cisco Systems Inc. (NASDAQ: CSCO), fiscal 2024 was a momentous year with strong order growth and an upswing in gross margins, although sales and profit for the year declined annually. The market will be closely following the upcoming earnings event, looking for cues on the company’s trajectory in the new fiscal year.

The San Jose-headquartered firm’s stock has been in an upward spiral for over three months, gaining an impressive 20% during that period. That followed an almost flat performance since the beginning of the year. In general, experts are optimistic about the stock’s prospects, with the average target price indicating a further uptick for the rest of the year.

Cisco, which is a leading manufacturer and supplier of networking equipment, holds the rare distinction of consistently delivering better-than-expected quarterly earnings over the past several years. For the first quarter, analysts forecast earnings of $0.87 per share, on an adjusted basis, compared to $1.11 per share in Q1 2024. It is estimated that revenues declined to $13.77 billion in the October quarter from $14.7 billion in the prior year period. The company will be publishing the report on Wednesday, November 13, at 4:05 pm ET.

AI Bet

After acquiring Splunk earlier this year – Cisco’s biggest buyout ever – and bringing their teams together, the company has made significant progress in integrating new customer solutions, benefitting from early synergies. The company is expanding its footprint in areas like enterprise AI and cybersecurity, encouraged by the strong order growth in those segments.

From Cisco’s Q4 2024 earnings call:

“We saw steady demand as we closed the year with total product order growth of 14% and growth of 6%, excluding Splunk, indicating that the period of inventory digestion by our customers is now largely behind us as we expected. We’ve also been investing to accelerate critical innovation in key areas with Hypershield and HyperFabric for AI being two outstanding examples. With Splunk now part of Cisco, we believe we have an unmatched capability to unlock the full power of the network with market-leading security and observability solutions to deliver even greater value for our customers.”

Cisco looks poised to benefit from the widespread adoption of artificial intelligence because all businesses might require AI-native networking systems at some point. Recently, it announced a restructuring plan focused on investing in key growth areas and enhancing efficiency. That is expected to impact around 7% of Cisco’s global workforce, with estimated pre-tax charges of up to $1 billion.

Mixed Results

In the final three months of fiscal 2024, weakness in the networking business negatively impacted overall performance. Adjusted earnings fell 24% to $0.87 per share in the fourth quarter, reflecting a 10% drop in revenues to $13.6 billion. Meanwhile, the topline beat estimates for the ninth straight quarter. Unadjusted net income was $2.2 billion or $0.54 per share in Q4, compared to the prior year’s profit of $4.0 billion or $0.97 per share. Gross margin rose by 200 basis points to 67.9%, exceeding the high end of the management’s guidance range.

After making steady gains in recent months and moving closer to its 2021 peak, CSCO traded almost flat in the early hours of Tuesday’s session.