Cisco earnings surprise Wall Street with fiscal Q4 earnings beat

• Cisco Systems beat the Wall Street consensus on the top and bottom lines.
• CSCO shares rose more than 5% on the news, traveling above $48 afterhours.
• US CPI data was mostly in-line for inflation, which tempered growth stock gains but helped blue chips.
• Dow Jones led other indices in Wednesday's regular session.

Few were expecting much from Cisco Systems (CSCO) earnings on Wednesday, so when the scheduled post-close earnings for the fiscal fourth quarter came out on top, shares rose 5.7%. Shares were flat in the lead-up to earnings this week and down about 10% year-to-date.

High industry inventories for Cisco’s networking hardware, coupled with many customers’ capex focus on artificial intelligence (AI) chips, had fostered a downsizing streak at the San Jose-based company. But the company’s impressive showing on Wednesday is more reason not to discount the legacy tech powerhouse, especially with good signs from its Splunk acquisition.

Cisco’s performance will aid the Dow Jones index, of which it is a smaller member, on Thursday. The Dow led other indices on Wednesday as in-line July Consumer Price Index (CPI) data in the morning session led markets to take a less dovish bet on the Federal Reserve’s (Fed) expected rate cut on September 18. The market now expects a 25 bps cut rather than its prior 50 bps expectation.

Dow Jones Industrial Average bolstered by US CPI inflation into a second day of gains

Cisco Systems earnings news

Wall Street had expected Cisco to earn $0.85 per adjusted share on revenue of $13.54 billion. Instead, the company led by CEO Chuck Robbins reported $0.87 in adjusted EPS on revenue of $13.64 billion. 

While this was a 10% YoY decline in sales, Wall Street had clearly expected worse. They were additionally delighted by how robust future revenues already look in advance.

Cisco saw product order growth of 14% YoY overall but 6% when excluding Splunk. The company achieved an adjusted gross margin of 67.9% in the quarter, which places it in the top tier of companies on Wall Street in terms of pricing power. No wonder BMO Capital placed it on its High Quality Stock Screen earlier this week. Piper Sandler was also hopeful in regard to Splunk results prior to the release.

Total subscription revenue for the full fiscal year was $27.4 billion, which represented 51% of total revenue for the company. Subscription revenue typically gives companies higher valuation multiples as they are deemed sticky. Annualized recurring revenue of $29.6 billion, which includes Splunk’s $4.3 billion, rose 22% YoY.

Much of the subscription revenue came from the software division, which saw its revenue rise 9% from a year earlier in the quarter and software subscription revenue climb 15% YoY.

Management said that it expects to add about $100 million of incremental revenue to the next quarter (aka the current quarter). Guidance for the coming fiscal year is largely in-line with prior consensus at $55.6 billion at the midpoint. And full-year adjusted EPS guidance was given at $3.55.

Cisco Systems stock chart

Cisco's stock performance late Wednesday has been helped by the fact that it has been beaten down for some time. This can be seen below on the weekly chart, which shows that CSCO has been trailing both its 50-week and 200-week Simple Moving Averages (SMAs) since at least April. The stock was trading at just 15 times trailing earnings heading into the earnings call. 

With CSCO now back near July resistance in the mid-$48s, the next barrier sits in the high $49s where the prior mentioned SMAs are trending. The weekly Moving Average Convergence Divergence (MACD) has been traveling beneath the zero threshold of late, which tells us that there has been little movement toward an uptrend. 

For now Cisco will remain a stalwart of dividend investors until it can retake the $50 level. The stock has been trading within a wedge pattern for the past four years, and Wednesday's move off the bottom, ascending support trendline will give many the impression that it's on a course back toward the top, descending resistance trendline near $54.

Cisco Systems weekly stock chart