The news from
Cisco
for the company's fourth fiscal quarter was as solid as Street experts expected: the 40 cents a share beat consensus by a penny; and investors can thank the better-than-expected $10.4 billion as a key reason why.
Analyst Mark McKechnie at American Technology Research tells me Cisco's results are a "good, clean, solid quarter," pointing to inline gross margins of 65.2 percent, lower expenses, a slightly lower tax rate, and tellingly, a "strong book to bill despite worries about economic weakness."
On the conference call, Cisco CEO John Chambers says the company is "still comfortable with our 12 percent to 17 percent long-term growth" projection, which should come as an enormous relief to Cisco shareholders who have worried over a domestic economic slowdown spreading to Cisco customers around the world. As soon as Chambers mentioned that, which came in passing at the very top of the conference call, the stock popped significantly.
"Our confidence in the 12-17 percent long-term growth range remains very strong," Chambers said.
"Despite the uncertain macro-economic environment, our strategy...is right on target," says Chambers, who added that the economic woes so many investors are concerned about is a "relatively short challenge going forward."
He said, "Our best estimates is that the current economic challenges (will remain) for the next few quarters. And because of the uncertainty, Cisco is only providing first half 2009 guidance, anticipating 8 percent year-over-year first quarter growth, and 8.5 percent revenue growth for the second quarter. Cisco gave back a sliver of its after-market rally, but the indication for shareholders is that there may indeed be light at the end of the tunnel.
Fourth quarter revenue of $10.4 billion was the first time the company exceeded that $10 billion plateau, and therefore record revenue for a key tech industry bellwether that many experts look to as a kind of canary in a coal mine as economic metrics suggest a slowdown elsewhere. China grew 30 percent, India 20 percent, Mexico and Russia both above 40 percent, Brazil up 30 percent, and emerging markets in Asia grew 23 percent, year over year. Asia Pacific increased 19 percent; Japan order growth jumped 10 percent; Europe up 11 percent; and US and Canada up 7 percent.
Deeper into the release, Cisco says it bought back 54 million shares of stock at an average price of $25.11, spending about $1.35 billion of the $3.5 billion in cash the company generated during the quarter. That compares to the 83 million shares the company bought last quarter, spending about $2 billion to do so. Why is that important? Some of the analysts I was talking to suggested to me ahead of earnings that should Cisco beat by a few pennies, or even a single penny, pay attention to the stock repurchase: if it rises significantly, they told me, that would call into question that earnings per share beat and whether it was from continuing operations, or whether it was inflated by a share repurchase. It's pretty clear that Cisco's EPS beat was solid, and not from a share repurchase since it declined precipitously from its sequential last quarter.
Something to keep in mind for shareholders wondering whether now is the time to take a long hard look at this stock.