Cisco Systems reported (https://tinyurl.com/y5fbct88) after the market closed on 12 November 2020 it earned $0.51 per diluted share in the quarter that ended on 24 October 2020, down 25% percent from earnings of $0.68 in the equivalent 13 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Founded in 1984, Cisco is a leading seller of products, such as routers and switches, and related services, for connecting devices via the Internet. The company makes products related to the following technologies: software-defined wide area networks, cloud computing, 5G and WiFi-6, optical networking, next generation silicon, and artificial intelligence. A frequent acquirer of other companies, Cisco is working to complete the pending purchase of Acacia Communications, Inc., a company that sells high-speed coherent optical interconnect products, for about $2.6 billion.
Non-GAAP earnings fell 10% to $0.76 per share from $0.84 one year earlier, a percent change decline not as steep as seen with the GAAP figures. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.
The principal exclusions contributing to the $0.25 per share difference in the latest quarter between GAAP earnings and Non-GAAP earnings were: Stock-based compensation [$0.09 per share], Acquisition-related expenses [$0.06 per share], and Asset impairments and restructurings [$0.13 per share].
Non-GAAP earnings of $0.76 per share in the latest quarter beat the $0.70 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/wjr3ob2 for Cisco's earnings record and forecasts.
Stock market traders reacted positively to Cisco exceeding expectations. The price of the company's shares rose 8.5% during after-hours trading following the report.
Looking deeper into the GAAP results, "top-line" revenue in the October 2020 quarter totaled $11.9 billion, 9% less than last year's $13.2 billion. The Infrastructure Platforms business was responsible for 53% of overall revenue, and this unit's revenue fell by 16.0% compared to the year-earlier result. The Applications business contributed 12% of revenue, and this unit's revenue fell by 8.0%. The Services unit supplied 28% of revenue, and the amount grew by 2.0%.
The gross margin weakened from 64.3% of revenue to 63.6%, a sign that Cisco sold its output and services at less profitable prices relative to production costs. Sales, general, and administrative expenses increased from 22.8% to 23.1% of quarterly revenue, which shows the company spent more per dollar of sales on other operational costs, such as marketing. The effective income tax rate fell by 1.7% to 18.9%, which had a positive effect on net income.
Cisco's operating activities generated $4.1 billion in cash during the last quarter, up 14.2% from $3.6 billion in the year-earlier period. The cash flow delta was, therefore, much better than the change in earnings. Notable uses for cash included $1.5 billion to pay dividends to shareholders, $898 million for corporate acquisitions, $800 million to buy back the company's common shares, and $171 million to acquire property, plant and capital equipment.
Free cash flow over the last 12 months totaled $15.2 billion, or $3.58 per share using the latest share count. At the current market price per share of $38.67, this translates into a very attractive Free Cash Flow Yield of 9.3%.
The accompanying charts illustrate several trends in Cisco Systems's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.
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