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Margins and Buybacks Pushed Up Cisco’s Q3 Earnings

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Cisco’s earnings

On May 15, Cisco Systems (CSCO) reported that it had delivered higher-than-expected earnings in the third quarter of fiscal 2019. Its adjusted EPS of $0.78 exceeded analysts’ expectation of $0.77 by 1.3%. The company has managed to beat analysts’ estimates on earnings for the past seven straight quarters. Cisco’s third-quarter EPS touched the higher end of the company’s guidance of $0.76–$0.78 on improved demand for new hardware and software offerings.

For the fourth quarter of fiscal 2019, Cisco expects its adjusted EPS to lie in the range of $0.80–$0.82, higher than the previous year’s EPS of $0.70. Analysts have an EPS estimate of $0.82 for the fourth quarter.

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Earnings growth drivers

In the third quarter of fiscal 2019, Cisco’s EPS of $0.78 jumped ~18.2% YoY (year-over-year) driven by its top line and higher gross and operating margin growth despite its higher operating expenses. Its earnings also got a boost from its lower share count as a result of its share repurchases. Its revenue rose 4% YoY, while its adjusted operating income increased 6% YoY in the third quarter.

Its total adjusted gross margin of 64.6% in the third quarter was higher than its margin of 64.5% in the third quarter of fiscal 2018. The company’s adjusted operating margin also expanded from 32% in the third quarter of fiscal 2018 to 32.2% in the third quarter of fiscal 2019. The company repurchased ~116 million shares of worth $6 billion during the quarter.

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