Cisco Surprises With A Solid Quarter, Stock Rockets After Close

Cisco CEO John Chambers

[credit provider=”AP”]

Cisco just reported earnings for the quarter ended July 31, and the news looks good: adjusted earnings were $0.40 per share and revenue at $11.2 billion.Wall Street was expecting $0.38 per share on revenue of $10.98 billion; on its last earnings call Cisco gave guidance of $0.37 to $0.39 and $10.8 to $11 billion.

The stock is going nuts after hours — it’s up about 8% right now, and was up 12% at one point.

We’re on the earnings call now to hear if there are any surprises in Cisco’s guidance for the next fiscal year — click here or refresh your browser for the latest.

Apparently Wall Street likes the cuts Cisco has made so far, and Chambers’ hint during the earnings call that Cisco is NOT about to exit any more businesses in the near future.

Actual EPS was $0.22. The difference is due to a $772 million charge related to restructuring, which was expected. Last month, the company announced plans to cut its payroll by more than 11,000, including 6,500 layoffs and the sale of a factory that employs another 5,000 people.

The company’s cash balance now stands at $44.6 billion — up a bit from last quarter.

4:30: The call is starting with the usual preliminaries.

4:33: CEO John Chambers is on now, boasting slightly about the quarter’s results. A bit better than predicted. All segments look good except for public sector, which is down — governments are cutting back on IT spending.

4:35: Now he’s talking about the big shifts at Cisco.

First, simplifying the organisation — more accountability, fewer managers.

Second, reducing operating expenses — plan to drop it by more than $1B this year.

Third, managing portfolio and divesting or cutting back underperforming operations. We’ve also made decision to exit or materially lower investment in certain business areas, where material we’ve announced them publicly. “With these decisions behind us”…so it sounds like the product cuts are done. For now.

4:38: Many of our peers experiencing same problems. We made changes first, that will help us. Cisco has strong balance sheet, existing customer relationships.

“We will continue to accelerate and drive through the simplification process at an even faster pace.” The efforts will last for several years.

4:42: Diving into public sector spending — it’s declining everywhere. Orders down 4% worldwide, 7% down in the U.S., and federal down 18% (!). Similar concerns from many peers.

4:48: They’re going through the quarter’s results in detail — still waiting on guidance.

4:58: Q1 guidance: revenue growth of 1% to 4%. Note that revenue growth has a tough comparison because it was up 19% last year (from prevoius year). And Q1 is the toughest quarter sequentially. And let’s not forget the bad economy overall.

Our goal is to grow orders year over year faster than revenue growth, like Q4.

The call has been handed over to COO Gary Moore.

5:06: Beginning to focus on employee retention — enhanced compensation and employee satisfaction programs to begin this quarter. In other words, if you made the cut, look for a raise.

Reductions in investment were where we were over-invested. Again, it sounds like the cuts are over for now.

This week said would adjust investments in energy business — now energy management, not on-premise energy management devices. The networked building product line, looks like it’s going away.

Exited other areas as well. “Where material, we have already announced these decisions.”

5:18: Headcount: 71,825. Down 1,600 from last quarter.

5:23: More outlook for Q1. Operating expenses: $160m lower than Q4, or $600m lower on an annual run rate basis.

Restructuring charges: up to $300m in Q1. The balance will be recognised through the rest of the fiscal year. Restructuring charges won’t exceed $1.3 billion over three quarters (including the $700m+ from this quarter).

Revenue: +1% to 4%

Non-GAAP gross margins: 61% to 61.5%. One-time items like higher component costs and large transactions in Asia.

Non-GAAP EPS: $0.38 to $0.41. GAAP EPS will be between $0.10 and $0.14 lower.