Cisco Systems reported after the market closed on February 9, 2021, it earned $0.60 per diluted share in the quarter that ended on January 23, 2021, down 12 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).
Non-GAAP earnings rose 3 percent to $0.79 per share from $0.77 one year earlier, a much better change than the GAAP percentage. The most significant exclusions contributing to the $0.19 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Stock-based compensation [$0.10 per share], Acquisition-related expenses [$0.06 per share], and Asset impairments and restructurings [$0.06 per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's primary, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by Cisco to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by Cisco's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: 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 expects it will soon complete the $4.5 billion acquisition of Acacia Communications, Inc., a company that sells high-speed coherent optical interconnect products.
The following table is a simplified version of Cisco's Income Statement for the quarter that ended in January 2021, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided to facilitate comparisons.
Revenue in the January 2021 quarter totaled $12.0 billion, about the same as last year. The Infrastructure Platforms business was responsible for 53 percent of overall revenue, and this unit's revenue percent fell by 3.0 percent compared to the year-earlier result. The Applications business contributed 11 percent of revenue, and this unit's revenue was essentially unchanged percent. The Services unit supplied 28 percent of revenue, and this business's revenue rose by 2.0 percent.
I was expecting Cisco to report revenue of $11.9 billion for the January 2021 quarter. The actual amount surpassed my estimate by $60.0 million (0.5 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $4.2 billion in the latest quarter, which translates into a Gross Margin of 65.1 percent of revenue. Since it was higher than the 64.7 percent Gross Margin achieved in the year-earlier quarter, it signifies that Cisco sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 62.5 percent in the January 2021 quarter, and Cisco exceeded that prediction by 2.6 percent.
Cisco spent $1.5 billion on Research and Development in the latest quarter, down from $1.6 billion one year ago. I had estimated that R&D expenses would be $1.6 billion. R&D was 12.8 percent of Revenue.
Sales, General, and Administrative expenses totaled $2.8 billion in the January 2021 quarter, up 1.0 percent from one year ago. SG&A expenses increased from 22.8 percent to 23.1 percent of quarterly revenue, which shows Cisco spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 21.8 percent of revenue, and the actual percentage turned out to be higher than the prediction.
The last operating expense line on the Income Statement is where the sum of other operating income and charges, such as restructuring, may be listed. For Cisco the amount listed on this line was a $273 million loss in the latest quarter. I was expecting a net loss of $200 million.
Cisco's Operating Income was $3.2 billion in the quarter, down 4.6 percent from the year-earlier period. Operating Income exceeded my $3.0 billion estimate by $185 million.
Interest and other non-operating items summed to a net income of $32 million. My estimate for non-operating items was $80 million.
The effective income tax rate rose by 3.3 percent to 21.8 percent, which had a negative effect on net income. I expected the tax rate to be 19.0 percent.
Net income attributable to Cisco was $2.5 billion, $0.60 per share in the quarter ending January 2021. The figures for the year-earlier quarter were $2.9 billion, $0.68/share. My earnings estimate for the latest quarter was $2.5 billion ($0.60/share), so Cisco Systems earned the $0.60 I had predicted.
In conclusion, the following list shows where the reported results differed from my expectations:
– Better than expected: Gross Margin
– Worse than expected: SG&A + SG&A/Revenue + Special operating items + Misc non-operating items + Interest + Income tax rate
– Near expectations: Revenue growth + R&D
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#cisco #csco #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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