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Cisco Systems Drops on Disappointing Revenue Guidance

After the closing bell on Wednesday, Cisco Systems Inc. (NASDAQ:CSCO) released its first-quarter results for fiscal year 2020. Following this, shares of the U.S.-based communication equipment distributor fell $2.48 (or 5.12%) to a price of $45.98 per unit in after-hours trading.

The drop in the share price was a consequence of disappointing forward-looking guidance on earnings and total revenue expectations for the second quarter of fiscal 2020. Cisco Systems projected total revenue of $11.82 billion to $12.07 billion for the next quarter, down 3-5% from the year-ago quarter and lower than Wall Street forecasts of $12.7 billion. The company also predicts GAAP earnings per share of 61 cents to 67 cents, which is up only 1.6% year over year.

Regarding the first quarter of fiscal 2020 which ended on Oct. 26, GAAP earnings per diluted share of 68 cents topped estimates by 1 cent but decreased 11.7% from the prior-year quarter. Most likely, lower GAAP earnings also affected the share price during extended trading.

Total revenue of $13.16 billion represents 2% growth, surpassing expectations by $70 million. By segment, the year over year changes in revenues were reported as follows: Products was flat at $9.88 billion in revenue, while service was up 3.1% to $3.28 billion. Under products, the company marked a 22% gain in Security, a 6% gain in Applications and a 1% loss in Infrastructure Platforms.

Moreover, the gross margin was $8.46 billion for a GAAP gross margin rate of 64.3% of total revenue in the first quarter of fiscal 2020 versus $8.15 billion for 62.3% in the first quarter of fiscal 2019.

"We delivered a solid quarter against a challenging macro environment," Chairman and Chief Executive Officer Chuck Robbins said. "We're focused on continuing to drive innovation, transform our business and exceed our customers' expectations."

In the quarter, the company spent $2.3 billion to repurchase shares of its own common stock and to pay dividends. Cisco Systems bought back $768 million of its own common shares at an average price of $48.91 per unit, retiring 16 million shares. The company paid a 35-cent cash quarterly dividend per common share on Oct. 23 to its shareholders, spending $1.5 billion.

In the second part of fiscal 2020, the company plans to complete the acquisition of Acacia Communications Inc. (ACIA), a global developer, producer and seller of high-speed coherent optical interconnect products.

In the past year through Nov. 13, the stock price has risen 4% to $48.46 per share at close on Wednesday for a market capitalization of $205.66 billion. The share price is now below the 200- and 100-day simple moving average lines, but slightly above the 50-day SMA line.

The 52-week range is $40.25 to $58.26. The stock has a forward dividend yield of 2.89% as of Nov. 13.

Analysts on Wall Street issued an overweight recommendation rating for shares of Cisco Systems Inc. and have established an average target price of $54.91.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.