Cisco Systems (CSCO 0.82%), a veteran of networking hardware, software, and telecommunications equipment, shared its Q3 FY 2024 earnings results on May 15.
Most notably, Cisco posted revenue of $12.7 billion, surpassing management's upper guidance of $12.3 billion. This was accompanied by adjusted earnings per share (EPS) of $0.88, exceeding the expected $0.86, though they fell 12% year over year.
However, the company saw a 13% drop in overall revenue from $14.6 billion the previous year and a 41% decrease in GAAP EPS to $0.46, impacted by a $0.09 negative influence from the Splunk acquisition.
| Metric | Q3 FY 2024 | Management's Guidance Range | Q3 FY 2023 | % Change (YOY) |
|---|---|---|---|---|
| Revenue (in billions) | $12.7 | $12.1-$12.3 | $14.6 | (13%) |
| GAAP EPS | $0.46 | $0.51-$0.56 | $0.78 | (41%) |
| Non-GAAP EPS | $0.88 | $0.84-$0.86 | $1.00 | (12%) |
| Non-GAAP gross margin | 68.3% | 66%-67% | 65.2% | 3.1 pp |
Data sources: Results and management guidance from the company's SEC filings. YOY = year over year; pp = percentage points.
Company overview and focus areas
Cisco Systems, known for pioneering networking and telecommunications solutions, hosts a comprehensive product portfolio including hardware, software, and services. Recently, it has prioritized a handful of technology strategies:
- Driving revenue growth with products like Cisco Security Cloud and its AI-driven security offerings. The company reported a 36% increase in security product revenue this quarter.
- Seeking wide adoption of the Webex suite amid competitive pressure, introducing new devices and security features to enhance hybrid work capabilities.
- Observability solutions saw 27% revenue growth thanks to the application monitoring platform AppDynamics and the network observation tools of ThousandEyes.
- Continuous investments in technologies like high-capacity optical networking solutions and the Silicon One unified hardware architecture, aimed at future-proofing each Cisco client's network performance.
Quarterly highlights
During Q3, Cisco communicated some notable achievements and challenges.
Revenue came in at $12.7 billion, slightly beating the upper end of management's guidance but landing 13% below the $14.6 billion seen in the year-ago period
GAAP EPS of $0.46 missed the lower end of management's guidance range due to a $0.09 negative impact from the Splunk acquisition. Non-GAAP EPS slightly exceeded upper guidance levels at $0.88, reflecting effective cost management strategies.
Non-GAAP gross margin improved to 68.3%, well above the guidance range. This highlights efficient pricing strategies, especially within the non-hardware-centric sectors such as security and collaboration.
One standout was the security product segment, which experienced notable 36% growth. The Splunk acquisition added $413 million to revenues in this segment.
Revenues declined across key regions. Americas was down 15%, EMEA (Europe, Middle East, and Africa) down 9%, and APJC (Asia Pacific, Japan, and China) down 12%, indicating broad-based pressure.
Cisco also declared a dividend of $0.40 per share, consistent with the payout announced three months earlier and up from $0.39 per share in the same period a year ago.
Looking ahead
For the upcoming quarter, Cisco forecasts revenue between $13.4 billion and $13.6 billion. Non-GAAP EPS should land in the range of $0.84 to $0.86. Management also projects a non-GAAP gross margin between 66.5% and 67.5% and an operating margin range of approximately 32%.
Revenue predictions for FY 2024 stand between $53.6 billion and $53.8 billion. Non-GAAP EPS was targeted between $3.69 and $3.71.
As Cisco continues executing its strategic plans, investors should keep an eye on its profitability in software-centric areas and geographic revenue trends. Steady progress in hybrid work and security solutions are also crucial for maintaining leadership and growth in the tech industry.
