Cisco's Q3 Earnings Beat Expectations Despite Sales Drop

Cisco beats Q3 expectations with $12.7B revenue, despite a 13% drop, and revises 2024 guidance upwards amidst strategic acquisitions.

By Bill Bullington

5/15, 16:27 EDT
Cisco Systems, Inc.

Key Takeaway

  • Cisco's Q3 earnings beat expectations with an 88 cents EPS and $12.7 billion revenue, despite a 13% year-over-year sales drop.
  • The acquisition of Splunk for $28 billion boosts Cisco's security offerings, contributing $413 million in revenue.
  • Cisco raises fiscal 2024 revenue guidance to $53.6-$53.8 billion, reflecting a more optimistic outlook than analyst expectations.

Earnings and Revenue Beat Expectations

Cisco Systems Inc. reported its fiscal third-quarter earnings and revenue, surpassing Wall Street's expectations despite a year-over-year sales decline. The company's adjusted earnings per share stood at 88 cents, exceeding the LSEG consensus estimate of 82 cents. Revenue reached $12.7 billion, surpassing the expected $12.53 billion. This performance led to a more than 4% increase in Cisco's stock in extended trading. However, the company experienced a significant revenue decline of about 13% from the previous year, marking its steepest slide since 2009. Net income also saw a substantial decrease, falling 41% to $1.89 billion, or 46 cents per share, from $3.21 billion, or 78 cents per share, a year earlier.

Impact of Splunk Acquisition

During the quarter, Cisco completed its acquisition of security software maker Splunk for $28 billion. This strategic move slightly impacted Cisco's adjusted earnings per share by a penny but contributed an additional $413 million in revenue. The acquisition is part of Cisco's broader strategy to enhance its security offerings and is expected to be a significant driver of financial growth, according to Cisco CEO Chuck Robbins. Concurrent with the acquisition, Gary Steele, former CEO of Splunk, has been appointed as Cisco's president of go-to-market, signaling a strategic integration of Splunk's capabilities into Cisco's operations.

Revised Fiscal 2024 Guidance

Following the fiscal third-quarter performance, Cisco has updated its revenue guidance for fiscal 2024. The company now anticipates revenue to be in the range of $53.6 billion to $53.8 billion, up from the previous forecast of $51.5 billion to $52.5 billion made in February. This adjustment reflects a more optimistic outlook than analysts' expectations, which were set at $53.14 billion according to LSEG consensus. Additionally, Cisco has narrowed its full-year adjusted earnings forecast to $3.69 to $3.71 per share, compared to the prior range of $3.68 to $3.74, aligning closely with the LSEG consensus of $3.67.

Management Changes and Market Position

In conjunction with the financial updates, Cisco announced significant management changes. Jeff Sharritts, Cisco’s chief customer and partner officer, will be leaving the company. This news comes as Cisco's shares have experienced a 2% decline in 2024, contrasting with the S&P 500 index's 11% increase. The company's executives are scheduled to discuss these results and the strategic direction further in a conference call.

Management Quotes

  • Cisco:

    "The weakening performance stems from clients setting up the equipment they received in recent quarters." "Cisco bumped up its fiscal 2024 revenue guidance to a range of $53.6 billion to $53.8 billion, from $51.5 billion to $52.5 billion in February."