Cisco Beats the Street, But the Street Still Isn’t Impressed

Cisco Systems

The markets were unforgiving on Wednesday. Shares of Cisco Systems (NASDAQ:CSCO) fell more than 4 percent in post-market trading after the technology company raised its dividend and reported fiscal second-quarter earnings that beat analyst expectations. Fiscal second-quarter of revenue of $11.2 billion was higher than the mean analyst estimate of $11.03 billion, and adjusted earnings of 47 cents per share beat the mean analyst estimate of 46 cents per share. Cisco’s board of directors also declared a dividend of 19 cents, a 2 cent increase from the first-quarter.

“We had a record quarter of returning $4.9 billion to our shareholders through our quarterly dividend of approximately $900 million and share repurchases of $4.0 billion,” stated Frank Calderoni, executive vice president and chief financial officer, in the earnings release. “Our financial strength gives us the confidence to provide a meaningful return to our shareholders.”

But all this still wasn’t good enough to stem a tide of selling pressure. The bar that was set for Cisco was pretty low, and beating it wasn’t all that impressive. Both earnings and revenue are down about 8 percent on the year. Cash flow fell about 12 percent on the year to $2.9 billion.

In its conference call with analysts, Cisco also reported that sales in its switching business came in at $3.27 billion, below analyst expectations for sales of $3.31 billion. The company’s data center business did grow by 10 percent, though.

Cisco has faced a number of headwinds over the past few years. Sales have decelerated and the company has been forced to cut jobs. Analysts are expecting a 4 percent decline in revenue in 2014, and Cisco itself downwardly revised its sales growth outlook over the next three-to-five year period. One of the culprits has been weakness in emerging markets, which negatively affected the company’s second-quarter results.

Cisco’s current gambit is with the “Internet of Everything,” which touches on the world’s increasing connectivity. “We delivered the results we expected this quarter. I’m pleased with the progress we’ve made managing through the technology transitions of cloud, mobile, security and video,” said Chair and CEO John Chambers in the earnings release. “Our financials are strong and our strategy is solid. The major market transitions are networking centric and as the Internet of Everything becomes more important to business, cities and countries, Cisco is uniquely positioned to help our customers solve their biggest business problems.”

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