Cisco Increases Q2 Profit, Stock Flat on the News

Posted Feb 4th 2010 6:00PM by Steven Mallas
Filed under: Earnings Reports, Cisco Systems (CSCO), Technology

Cisco Systems, Inc. (CSCO), an expert in networking, posted Q2 results on Wednesday after the bell. Judging by the data, the tech company is holding up okay.

The top line saw an increase of 8%. Net income came in at 40 cents per share, a 25% jump compared to the year-ago number. According to our earnings preview, 35 cents per share was the figure to beat. Score one for management.

The team can also be proud of the gross margin. Shareholders, meanwhile, can feel happy about the fact that Cisco is apparently confident in its financial future: $1.5 billion was used to repurchase over 60 million shares during the quarter.

Unfortunately, the statement of cash flows for the six-month period didn't match the impressive earnings growth. Cash from operating activities took a dive of over 30%. There was still a significant amount of money left over after capital spending and acquisition activities, however. Long-term debt on the balance sheet has increased, although you can interpret that as an investment for the future (and let's not forget that there's a lot of cash and investments on the books to compensate for the debt level).

Overall, though, I found the earnings report to be satisfactory. I look favorably upon the two purchases mentioned in the release -- Cisco completed the transactions with ScanSafe and Starent Networks -- and I perceive the company's long-term prospects as being strong. As Trey Thoelcke mentioned in his preview, the forecast and valuation on the business is relatively positive.

It was a down day for the markets at large, but Cisco's shares managed to hold up under all the selling pressure surrounding it. The stock may not have been too hot this trading session, but it's not far off from a 52-week high, and I don't perceive a need to ditch it at the moment.

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: cisco, CSCO, tech stocks, TechStocks

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Reader Comments (Page 1 of 1)

2-04-2010 @ 7:03PM

Jeff Simpson said...

You "found the earnings report to be satisfactory"? Pretty insightful. Your blog appears to be an extremely superficial analysis of the quarterly results with a misleading headline.

2-05-2010 @ 5:33AM

Dan Barnett said...

Jeff Simpson

Superficial? What are you looking for?

Misleading Headline? Were CSCO profits not up? Do you want to debate whether a gain of .09 isn't flat? Given yesterday I'll give you that ANY gain is probably something to crow about; but saying the use of the term "flat" is misleading; is too much.

I see it that each and every earnings report contains both good and bad news. There is always something to be upbeat about and at the same time there is always discouraging news as well. This article gives us the good news, the bad news, the Author's opinion in summary, and his opinion of the future of the stock.

Again, what else do you want out of the article?

2-05-2010 @ 9:55AM

Jeff Simpson said...

Well Dan;

This blog was posted on the CNN Money website. I saw the headline "stock flat ON the news" implying that yesterday's flat stock performance was because of the earnings announcement not because of the overall market sell-off. So - I read the article to see why someone would make such a ridiculous assertion. The blog had the tone of an analysis except that there was no real interpretation of the headline numbers. For example, he was disappointed that cash flow was "down" but did not dig into the cash flow statement to figure out what caused the delta. If he had he might have seen that during the previous period Accounts Receivable's had contracted significantly (during the down turn) which is positive for cash flow but bad for the business. In the current period AR's had expanded significantly which is negative for cash flow but implies rapidly expanding sales volume, which I would interpret as a good thing. Hence, my comment about the blog being a superficial treatment of the headline numbers with little value-added insight.

So, what do I want out of an article that is posted on a globally branded site like CNN? I would hope that CNN would be selecting and presenting high-quality, high-value content and filtering out the rest so I don't have to. If they don't I will go elsewhere to read my news.

Sorry, but that's my opinion.