Did Cisco Show Strong Execution in Q2?
Ahead of the Cisco Systems’ (NASDAQ:CSCO) second-quarter earnings release, Topeka Capital Markets analyst Brian White presented a modestly bullish case for the company’s impending report in a Tuesday research note, in which he predicted that profit and earnings would hit slightly below the Street’s consensus estimate and show “strong execution but not strong markets.”
Cisco definitely showed strong execution when it reported that profits soared 44 percent on Wednesday after the market closed.
White had predicted Cisco to post revenue of $11.96 billion, slightly below the Street’s forecast of $12.06 billion, and generate earnings per share of 47 cents, compared to the Street’s estimate of 48 cents. Instead, the networking equipment manufacturer reported net income of 3.14 billion, or 59 cents a share, an increase from 2.18 billion, or 40 cents a share, in the year-ago quarter. Revenue was also up, climbing 5 percent to $12.1 billion…
But these results are not entirely unexpected — Cisco traditionally beats analysts expectations.
However, this is not say that White’s analysis missed entirely. He saw that current market conditions would affect results, and they did. Cisco’s customers’ tone was “cautious optimism,” the company’s Chief Executive Officer John Chambers said in the earnings conference call, according to CNN. He warned analysts against anticipating a quick and significant improvement in the networking sector, but he added that sentiment has improved.
The results showed evidence of something other than market weakness; Cisco appears to be undergoing a transformation. Cisco has long dominated the routers and switches markets, but its move to services like online video and data has paid off. Cisco showed in its second-quarter earnings report that its core businesses still make up half of the company’s revenue, but growth in those areas have slowed. Comparatively, the company’s strategic services are gaining momentum; data center sales rose 65 percent, year over year, wireless networking increased 27 percent, and online video services jumped 20 percent…
And this reinvention has begun to pay off. Diversifying its business has pushed shares of Cisco close to their 52-week high of $21.34, while its competitors have struggled. Chief executive of Alcatel-Lucent (NYSE:ALU), Ben Verwaayen, has been unable to turnaround the French telecom giant, and he announced his resignation last week. Shares of F5 Networks (NASDAQ:FFIV) have found the economic environment difficult as well, struggling to make up for losses sustained in the first half of 2012.