Cisco Systems Inc. reported another drop in earnings and soft earnings guidance for the current quarter on Wednesday afternoon, then announced that its chief financial officer would retire after shares accumulated in after-hours trading.
The maker of network services, video conferencing tools and security software reported fourth-quarter net income of $ 2.64 billion, or 62 cents a share, after revenue fell 9% to $ 12.15 billion from $ 13.4 billion in the first quarter. year ago. After adjusting for share compensation and other effects, Cisco reported earnings of 80 cents a share, down slightly from 83 cents a share a year earlier.
Analysts surveyed by FactSet had forecast adjusted earnings of 65 cents a share on earnings averaging $ 12.09 billion, although those expectations have dropped significantly since COVID-19 began to spread across the globe. Analysts expected regulated earnings of 75 cents a share in sales of $ 13.14 billion at the end of 2019.
The adjusted first-quarter earnings guidance from 69 cents to 71 cents fell less than 75 cents modeled by FactSet analysts. Cisco also warned that Q1 revenues would fall from 9% to 11% year-on-year.
The fourth quarter results, announced after the market close Wednesday, sent Cisco CSCO,
shares are discounted more than 6% in after-hours trading. Cisco stock is flat in 2020, while the S&P 500 SPX index,
has risen to 4.6%. However, since March 12, Cisco shares have risen 45%.
In a conference call Wednesday afternoon, Cisco announced that CFO Kelly Kramer will retire from the company once a replacement is found. In an interview after the call ended, Kramer told MarketWatch that her departure had nothing to do with the company, I love Cisco.
Kramer instead said “it’s just time” after 30 years in business and six years as Cisco’s CFO, and that she looks forward to “more onboard work and investment”.
Kramer will not be the only Cisco employee to retire this fiscal year. Cisco said it would experience a $ 1 billion cost cut “over the next few quarters” by “rebalancing its R&D investments” in areas that include cloud security and enterprise automation, leading to speculation of country cuts. by Patrick Moorhead, lead analyst at Insights & Strategy.
Kramer admitted in an interview with MarketWatch that the first part of these cuts will be voluntary retirement offers for Cisco employees. Once the company realizes how much these efforts can reduce, decisions will be made on other moves to reach the $ 1 billion figure, she said.
Cisco is benefiting and suffering in the coronavirus era: Sales of computer hardware are shrinking during the pandemic, as demand for Cisco tools and services that help work remotely, such as Webex, has increased. Executives noted Wednesday that most of Cisco’s revenue – 51% – came from software and services in fiscal year 2020, the first time they have crossed that mark.
“By the end of fiscal year 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations,” said the CEO. Cisco Chuck Robbins in a statement announcing the results. “As we focus on the future, we are re-evaluating our R&D investments to focus on new areas, so we can continue to offer our customers the best, most relevant technology in the simplest, most easily consumable. “
Cisco finds itself in a gauze situation during the pandemic: it is already dominant in the network equipment markets, but faces pressure from the unpredictable service provider and enterprise costs; COVID-19 and the work-from-home movement have put pressure on high-margin campus product groups; and the recent entry of Arista Networks Inc. ANET,
and Juniper Networks Inc. JNPR,
on-campus switch and WLAN pose threats.
“We are aware that Cisco’s top line is being challenged in the near and medium term by macro machines, but diversification, opex [operating expense] “Cash flow discipline and flexibility allow it to show greater resistance to the profit line,” Morgan Stanley analyst Meta Marshall said in a July 9 note updating overweight Cisco shares and keeping a $ 54 price target. .
MarketWatch staff writer Jeremy C. Owens contributed to this article.