Cisco’s stock is up on strong quarterly sales and guidance, but restructuring is coming

The shares of Cisco Systems Inc. rose during extended trading on Wednesday after the network technology company delivered better-than-expected top and bottom line numbers and offered encouraging guidance.

Still, Scott Herren, Cisco’s chief financial officer, announced a “limited corporate restructuring,” to be shared with employees Thursday, that will right-size the real estate portfolio and affect about 5% of the 80,000 global workforce — or 4,000. people. “This is about rebalancing across the board,” he said, adding that as many jobs will be added as they will be cut.

“Our goal is to minimize the number of people who eventually have to leave,” Herren told MarketWatch. “We will match as much as possible with new positions at the company. This isn’t about reducing our workforce — in fact, at the end of this fiscal year, we’ll have about the same number of employees as when we started.

Cisco CSCO,
reported fiscal first quarter net profit of $2.7 billion, or 65 cents per share, compared to net profit of $3 billion, or 70 cents per share, in the year-ago quarter. Adjusted earnings were 86 cents per share. Revenue was $13.6 billion, up 6% from $12.9 billion a year ago.

Analysts polled by FactSet had expected net earnings of 84 cents per share on revenue of $13.3 billion. The shares were up more than 5% in after-hours trading immediately following the results, after falling 1% in regular trading on Wednesday at $44.39.

“Our fiscal year 2023 is off to a great start as we delivered the largest quarterly revenue and second-highest non-GAAP earnings per share in our history,” Cisco CEO Chuck Robbins said in a statement announcing the results. On a conference call with analysts late Wednesday, Robbins noted a “modest improvement” in component supply amid an easing supply chain pipeline.

Cisco’s Product ($10.25 billion) and Service ($3.39 billion) businesses were up slightly year over year. Secure, Agile Networks, the company’s main business segment, including data center network switches, raised $6.68 billion, up 12% from a year ago.

Herren acknowledged buying caution in Europe, driven by a dramatic rise in energy costs and market volatility. The company has also ceased operations in Russia.

For the fiscal second quarter, Cisco executives forecast 84 cents to 86 cents per share in adjusted earnings and revenue growth of 4.5% to 6.5%. Analysts forecast adjusted earnings of 85 cents and revenue of $13.24 billion, according to FactSet.

Shares of Cisco Systems are down 30% this year as the broader S&P 500 index SPX,
decreased by 17%.

In the days leading up to Cisco’s report, financial analysts had expected results and guidance in line with their modest expectations, but warned of continued supply chain problems.

“We model 15-20% declines in orders [year-over-year] due to difficult comparisons a year ago and stronger seasonality in the past quarter, but the backlog should protect earnings for now,” Barclays analyst Tim Long said in a note to investors on Tuesday.

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