Cisco Systems CSCO reported first-quarter fiscal 2025 non-GAAP earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 4.6%. However, the figure decreased 18% year over year.
CSCO’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average earnings surprise being 4.14%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Revenues of $13.8 billion beat the Zacks Consensus Estimate by 0.57%. The top line decreased 5.6% year over year.
Following first-quarter fiscal 2025 results, CSCO shares fell more than 2.5% in pre-market trading on Thursday. Cisco shares have appreciated 15.7% year to date, underperforming the Zacks Computer and Technology sector’s return of 29.3%.
Cisco Systems, Inc. Price, Consensus and EPS Surprise
Cisco Systems, Inc. price-consensus-eps-surprise-chart | Cisco Systems, Inc. Quote
Nevertheless, CSCO shares are expected to appreciate with the announcement of new additions to its data center infrastructure portfolio, a new NVIDIA NVDA-based AI server and AI PODs, which include NVDA’s AI Enterprise cloud-native software platform managed through Cisco Intersight to simplify and de-risk AI infrastructure.
The Cisco-NVIDIA partnership has also introduced the Cosco Nexus HyperFabric AI cluster solution, a new end-to-end infrastructure aimed to scale generative AI workloads efficiently.
A rich partner base that includes the likes of Meta Platforms META, Microsoft MSFT, Lenovo and AT&T is expected to work in favor of Cisco.
YTD Performance
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CSCO’s Top Line Affected by Sluggish Networking Revenues
Cisco has been suffering from sluggish networking sales, primarily due to lackluster demand from telecommunication and cable services providers as well as stiff competition. Excess inventory with customers has dampened growth.
Revenues from Networking in first-quarter fiscal 2025 were $6.75 billion, having decreased 23% on a year-over-basis.
In first-quarter 2025, CSCO expanded its collaboration portfolio with the Webex AI Agent, AI Agent Studio and Cisco AI Assistant features for the Webex Contact Center. The solutions utilize advanced conversational intelligence and automation to improve customer satisfaction.
Collaboration revenues fell 3% year over year and were reported to be $1.09 billion. The decline was attributed to the on-prem Webex Suite and collaboration devices, partially offset by growth in CSCO’s contact center and CPaaS offerings.
Observability revenues were $258 million and grew 36% year over year, driven by ThousandEyes and Splunk Observability.
Cisco is benefiting from strong security growth, driven by robust demand for solutions like XDR, Secure Access and Multicloud Defense suites.
Security revenues doubled year over year to $2.02 billion, primarily driven by growth in Cisco’s threat intelligence, detection and response offerings like Splunk and SASE.
Total Product revenues in first-quarter fiscal 2025 were $10.11 billion, comprising 73.1% of Cisco’s total revenues. On a year-over-year basis, product revenues decreased 9.2%.
Service Revenues were $3.7 billion, comprising 26.9% of Cisco’s total revenues. On a year-over-year basis, service revenues increased 5.6%.
Annualized Recurring Revenues (ARR) for the quarter were $29.9 billion, up 22% on a year- over-year basis, with product ARR growth of 42%.
Region-wise, Americas contributed 59.6% of total revenues, followed by EMEA (Europe, Middle East, and Africa) and APJC (Asia Pacific Japan China), with respective contributions of 25.9% and 14.5%.
CSCO’s Operating Expenses Rise Y/Y
Non-GAAP gross margin was 69.3%, which contracted 2.6% year over year.
On a non-GAAP basis, the product gross margin decreased 590 basis points (bps) to 50.4%. Service gross margin increased 760 bps to 18.9%.
In first-quarter fiscal 2025, Cisco reported total non-GAAP operating expenses of $4.87 billion, up 9% from the prior-year quarter. As a percentage of revenues, the figure expanded to 35.2% from 30.5% in the year-ago quarter.
Research & development (R&D) expenses increased 19.5% year over year to $2.29 billion. As a percentage of revenues, R&D expenses increased 350 bps to 16.5%.
Sales & marketing (S&M) expenses increased 9.8% year over year to $2.75 billion. As a percentage of revenues, S&M increased 280 bps to 19.9%.
General & administrative (G&A) expenses increased 18.3% year over year to $795 million. As a percentage of revenues, G&A increased 120 bps to 5.7%.
Consequently, CSCO reported a non-GAAP operating income of $4.72 billion, down 12.1% from the year-ago quarter.
CSCO’s Balance Sheet Details
As of Oct. 26, 2024, cash and cash equivalents and investments totaled $18.67 billion, which increased from $17.85 billion as of July 27, 2024.
Total debt, as of Oct. 26, 2024, was $31.99 billion, up from $30.96 billion as of July 27, 2024.
The remaining performance obligations (RPO) at the end of the fiscal first quarter of 2025 were $40 billion, up 15%, with 51% of the amount to be recognized as revenues over the following 12 months.
In the first quarter of fiscal 2025, CSCO returned $3.6 billion to stockholders through share buybacks and dividends. It repurchased approximately 40 million shares of common stock for an aggregate price of $2 billion. The share repurchase program has $3.2 billion remaining under authorization.
CSCO’s Q2 2025 Guidance
For second-quarter fiscal 2025, Cisco expects non-GAAP earnings between 89 cents and 91 cents per share.
Revenues are expected be in the range of $13.75 billion and $13.95 billion.
Non-GAAP gross margin is expected to be between 68% and 69%. Non-GAAP operating margin is anticipated to be between 33.5% and 34.5%.
Non-GAAP effective tax rate is expected to be approximately 19%.
The Zacks Consensus Estimate for CSCO’s second-quarter fiscal 2025 revenues is pegged at $13.66 billion, indicating year-over-year growth of 6.81%. The consensus mark for earnings is pegged at 87 cents per share, unchanged over the past 60 days.
Cisco Shares: Buy, Sell or Hold?
Cisco’s near-term results are expected to suffer from sluggishness in the networking business. However, thanks to its Nexus brand, product orders are expected to improve. Demand for 400 gig and 800 gig switches based on Silicon One remains strong.
An expanding portfolio, growing footprint in the cybersecurity domain and a strong partner base are key catalysts that can help CSCO shares accelerate.
However, a sluggish federal business in the near term is a headwind.
Cisco’s stock is not so cheap, as its Value Score of C suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, CSCO is trading at 4.2, higher than the sub-industry’s 3.65.
Price/Sales Ratio (F12M)
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Cisco currently carries a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable entry point to buy the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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