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Big Rewards for Shareholders in Cisco’s 3Q Earnings


May. 14 2020, Published 7:36 a.m. ET

Cisco Systems (NASDAQ:CSCO) released earnings results for its fiscal third quarter, ended April 25, on Wednesday. The company’s main business is selling networking gear, mostly comprising networking switches and routers. However, the company also diversified into providing cyber-security solutions and video chat tools. The company’s Webex video conferencing app competes with Zoom Video (NASDAQ:ZM) in the enterprise segment.

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Cisco’s results beat consensus estimates

Cisco’s earnings report delivered $12 billion in revenue. The revenue fell 8.0% from a year ago. However, the revenue exceeded the consensus estimate at $11.7 billion. The company posted an adjusted EPS of $0.79, which rose from $0.78 a year ago and beat the consensus estimate at $0.69.

Cisco’s main Infrastructure Platforms division, which houses the networking hardware business, recorded a 15% YoY (year-over-year) drop in revenue to $6.43 billion. During Cisco’s earnings call, executives explained that pandemic-driven manufacturing and supply challenges impacted the division. The company manufactures its products in China, which became the epicenter of the coronavirus outbreak. Also, Cisco’s reliance on Chinese manufacturing also exposed it to President Trump’s trade tariffs on Chinese imports.

Cisco’s Applications division, which houses the Webex video chat tool, recorded a 5.0% YoY drop in revenue. However, the company plans to add more features to the Webex tool to generate more revenue.

Cisco’s outlook raised hope

Cisco expects its earnings for the current quarter to beat the consensus estimates, which gave shareholders some relief. The company expects its fiscal fourth-quarter adjusted EPS to be $0.72–$0.74. The amount compares favorably with the consensus estimate of $0.69.

For the top line, Cisco expects its fourth-quarter revenue to fall 8.5%–11.5%. In contrast, Wall Street expects the company’s revenue to fall by 12%.

$2.5 billion in dividends and repurchases for shareholders

Cisco’s earnings report shows that the company continued to put money back in shareholders’ pockets despite COVID-19 disruptions. Overall, the company sent back $2.5 billion to its shareholders in the fiscal third quarter. The returns included $1.0 billion in dividends and $1.5 billion in stock repurchases. So, Cisco wrapped up the quarter with $28.6 billion in cash reserve.

Apple, Alphabet (NASDAQ:GOOGL), and PayPal (NASDAQ:PYPL) shareholders benefited from generous repurchase programs amid the pandemic.

At $41.95 per share, Cisco stock is still down 12% year-to-date. Notably, the stock trades at nearly 30% discount to its 52-week peak of $58.26.


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