Cisco Systems' solid quarter benefited from easing supply chain constraints

Published Wed, Aug 17 20227:47 PM EDTUpdated Wed, Aug 17 20227:51 PM EDT

Cisco Systems (CSCO) reported better-than-expected quarterly results after the closing bell Wednesday. Revenue in the computer network equipment company's fiscal fourth quarter was flat year over year at $13.1 billion, beating estimates on FactSet of $12.7 billion. Adjusted quarterly earnings decreased 1% year over year to 83 cents per share, beating estimates by a penny. Adjusted gross margin fell to 63.3%, slightly below estimates of 64.7%; adjusted operating margin dropped to 32.4%, slightly below estimates of 32%. One reason why Cisco reported good numbers was an improving supply chain. Back in April, Cisco's supply chain was challenged due to Covid related lockdowns in China. The company could not source enough semiconductor and power supplies to ship out product and the attached software. The good news is those supply constraints began to ease slightly in the back half of the just-completed quarter, and they continued to improve at the start of the company's current fiscal first quarter. Bottom line Expectations for Cisco were low heading into this quarter due to uncertainty around its supply chain. Although the company has yet to see any signs of cracks in demand, the biggest question mark centered on how quickly the availability of key components will bounce back after China reemerged from lockdowns. We got our answer Wednesday evening as Cisco navigated its challenges slightly better than anticipated, leading to both revenue and adjusted earnings-per-share upside. Cisco believes the combination of its record product outlook, remaining performance obligation (RPO) of more than $31 billion, and the low cancellation rates — which are still below pre-pandemic levels despite all the macro uncertainty — provides the company with increased visibility and strong revenue growth as it makes its way into its fiscal 2023 year. The better-than-expected quarter and solid forward guidance were helping the Dow stock bounce more than 4% to just under $49 in after-hours trading. While the stock remains cheap on a price-to-earnings basis and the dividend yield of 3% pays us as we wait for the supply chain pressures to ease further, we are keeping our 2 rating on the stock . Outlook Management introduced guidance for their full fiscal year 2023. They expect revenue at Cisco to increase 4% to 6% year over year, implying total revenue of about $54.18 billion. This is higher than estimates of $52.7 billion. Adjusted full-year earnings per share are expected to be in the range of $3.49 to $3.56, which at a midpoint of $3.53 is in line with estimates and represents growth of about 5%. For the first quarter of fiscal 2023, management expects revenue to grow 2% to 4% year over year. The midpoint of this guide implies revenue of $13.29 billion