Cisco Beats 1Q 2021 Estimates and Issues a Strong Q2 View

Cisco Beats 1Q 2021 Estimates and Issues a Strong Q2 View
November 16, 2020

 

Router manufacturer Cisco Systems Inc (Nasdaq: CSCO) reported a decline in the fiscal 2021 first-quarter earnings and revenue compared with the similar period last year. However, the company’s quarterly results surpassed Wall Street estimates. Despite a decline in the top and bottom-line figures, the company’s share price gained 7.06% or $2.73 to close at $41.40 as the demand for the company’s networking products is on the rise due to a sharp increase in the number of people working from home.

The San Jose, California-based company reported first-quarter revenues of $11.929 billion, compared with $13.159 billion in the similar period last year.

For the quarter ended October 24th, 2020, net income declined to $2.174 billion, or $0.51 a share, from $2.926 billion, or $0.68 per share, in the quarter ended October 26th, 2019.

Excluding share-based compensation expense, amortization of acquisition-related intangible assets, restructuring costs, and other expenses, the 1Q 2021 non-GAAP net income was $3.211 billion, down from the non-GAAP income of $3.608 billion in 1Q20.  On a per-share basis, Q1 2021 non-GAAP earnings were $0.76, compared with $0.84 a share in Q1 2020.

Analysts polled by Thomson Reuters had anticipated the company to post non-GAAP earnings of $0.70 per share on revenues of $11.85 billion.

Commenting on the results, Kelly Kramer, CFO of Cisco, said, “Our Q1 results reflect good execution with strong margins in a challenging environment. We continued to transform our business through more software offerings and subscriptions, driving 10% year over year growth in remaining performance obligations. We delivered strong growth in operating cash flow and returned $2.3 billion to shareholders.”

Segment-wise,

  • Product revenue declined to $8.587 billion, from $9.878 billion last year.
  1. Infrastructure Platforms revenue dropped 16% to $6.341 billion.
  2. Applications revenue fell 8% to $1.380 billion.
  3. Security revenue increased 6% to $861 million.
  • Service revenue increased to $3.342 billion, from $3.281 billion in the prior-year period.

By geographical location,

  • America’s revenue declined 10% to $7.198 billion.
  • EMEA (Europe, the Middle East, and Africa) revenue fell by 10% to $2.964 billion.
  • APJC (Asia Pacific, Japan, and China) revenue declined 7% to $1.767 billion.

On a GAAP basis, the total gross margin in 1Q 2021 was 63.6%, compared with 64.3% in 1Q20. Likewise, product gross margin and service gross margin declined to 62.7% and 65.8%, respectively, compared to 64.3% in the similar quarter of fiscal 2020.

By geographic segment, total gross margins were 67.3% for the Americas, 63.9% for EMEA, and 63% for APJC.

GAAP operating income declined 28% y-o-y to $2.60 billion.  GAAP operating margin and tax provision rate was 21.5% and 18.9%, respectively.

Cash flow from operating activities rose by 14% y-o-y to $4.10 billion in 1Q 2021. At the end of the first quarter, cash and cash equivalents were $30 billion, an increase from $29.40 billion in 1Q20.

Deferred revenue increased 10% y-o-y to $20.50 billion. Specifically, deferred product revenue rose by 15%, while deferred service revenue increased 7%.

During the first quarter, Cisco paid back $2.30 billion to shareholders in the form of share repurchases and dividends. The remaining authorized amount under the share repurchase program is $10 billion.

Moving forward, the company anticipates the second-quarter revenue to remain flat or decline up to 2% on a y-o-y basis. The company also expects a non-GAAP gross margin in the range of 64% to 65%. The non-GAAP operating margin rate is anticipated between 32% and 33%. Cisco also forecasts GAAP EPS to be in the range of $0.55 to $0.60 per share. Non-GAAP earnings are anticipated between $0.74 and $0.76 per share.

Analysts surveyed by Refinitiv anticipate Q2 adjusted earnings of $0.73 per share and $11.63 billion in revenue, which translates into a 3% revenue decline on a y-o-y basis.

Regarding the business in the new fiscal year, Chuck Robbins, chairman and CEO of Cisco, said: “Cisco is off to a solid start in fiscal 2021 and we are encouraged by the signs of improvement in our business as we continue to navigate the pandemic and other macro uncertainties. […]”

The earnings beat and rising demand for networking products are expected to keep the stock range-bound with a slight bullish bias.

The price chart indicates that the stock is rising after testing support at 39. The next resistance is anticipated only near 48.  Additionally, the stochastic oscillator is also in the oversold region. Therefore, we are anticipating the stock of Cisco to appreciate further in the days ahead.

csco - technical analysis - 16th November 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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