Cisco Shares Slump on Outlook, Cutting 4,000 Jobs

Andrew Klips |

Shares of Cisco Systems Inc. (CSCO) bucked the market trend on Wednesday to close the day up by 0.2 percent at $26.38 ahead of releasing its fourth quarter financial results, but that’s where the party ended.  The press release showed earnings and sales that were essentially in line with expectations, but a conference call afterwards sent the stock downward with news of jobs cuts and a soft outlook.

For the quarter ended July 27, San Jose-based Cisco reported revenue of $12.4 billion, up by 6 percent from $11.7 billion in the same quarter last year.  Net income totaled $2.3 billion, or 42 cents per share, compared to $1.9 billion, or 36 cents per share, in the year prior quarter.  Non-GAAP earnings, which excluded costs associated with a settlement with TiVo, Inc. (TIVO) and other one-time items, were $2.85 billion, or 52 cents per share, up from $2.53 billion, or 47 cents per share, in Q4 2012.

Wall Street was expecting adjusted earnings of 51 cents per share on revenue of $12.4 billion.  Analysts typically don’t include one-time items in forecasts.

Product sales, the largest contributor to revenue, rose to $9.74 billion in the latest quarter from $9.15 billion in last year’s quarter.  Service revenue improved from $2.54 billion to $2.68 billion.

Operating expenses declined from $4.71 billion from $4.53 billion as the company tapered sales and marketing costs.  The fourth quarter last year also included 79 million in restructuring and other charges that were absent this year.

Operating income climbed to $2.81 billion from $2.37 billion.

Gross margin slipped to 59.2 percent form 60.6 percent.

"My confidence in our ability to be the #1 IT Company is increasing. Our fourth quarter was a record on many fronts, with record revenue, and record non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share. In every case, we exceeded the midpoint of our guidance," said John Chambers, chief executive and chairman at Cisco, in the earnings release.

Cisco repurchased 47 million shares of common stock in the fourth quarter for an aggregate amount of $1.2 billion, bring the year total to 128 million shares for $2.8 billion.

For the whole year, revenue increased to $48.61 billion from $46.06 billion a year earlier.  Net income was $1.86 per share, versus $1.49 per share last year.  Excluding items, the company would have earned $2.02 per share, topping $1.85 per share in 2012.

At that point, the stock was tripped up some, but the wheels came off when the company said in its earnings call that it will be cutting 5 percent of its staff, or about 4,000 jobs, as an answer to a challenging and slowly recovering economies globally.  Cisco will incur costs of up to $300 million as a result of the job reductions.  Because of its worldwide reach and robust product portfolio, Cisco is widely regarded as a barometer of the technology industry, so the news is not exactly inspiring.

Adding fuel to the fire, Cisco said that it sees revenue growth in the first quarter of 3 percent to 5 percent, which would equate to $12.2 billion to $12.5 billion.  Analysts expected $12.45 billion in sales.  Profit outlook of 50 cents to 51 cents per share narrowly matched Wall Street expectations of 51 cents.

Shares of CSCO have been outperforming the broad markets so far in 2013, climbing about 35 percent through Wednesday’s closing price of $26.38.  In extended trading, the stock price fell about 9 percent to $24.

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Companies

Symbol Name Price Change % Volume
CSCO Cisco Systems Inc. 31.34 -0.32 -1.01 20,442,199
NRWGF Norwegian Property As Ord 0.99 0.00 0.00 0
TIVO TiVo Inc. 21.49 0.24 1.13 719,063

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