TMCnet News

Cisco's profit exceeds Wall Street expectations, partly due to tax benefits
[February 14, 2013]

Cisco's profit exceeds Wall Street expectations, partly due to tax benefits


SAN JOSE, Feb 14, 2013 (San Jose Mercury News - McClatchy-Tribune Information Services via COMTEX) -- Bolstered by a nearly $1 billion tax windfall, networking giant Cisco Systems (CSCO) handily beat Wall Street's expectations Wednesday with its latest earnings report.



The company said it earned $3.1 billion on sales of $12.1 billion for its second fiscal quarter, or 59 cents per share.

Analysts surveyed by Thomson Reuters generally had expected San Jose-based Cisco to earn 40 cents per share on sales of $12 billion.


Compared to the same period a year ago, sales were up 5 percent and profit rose 44 percent. But the company said the profit increase partly reflected a $926 million tax bonus stemming from a settlement with the U.S. Internal Revenue Service and reinstatement of the federal research and development tax credit.

Following the report after the market's official close, Cisco's shares fell 39 cents, or nearly 2 percent, to $20.75 in after-hours trading. Although the company has seen a big run-up in its stock price over the last three months, that will probably level out over the next few months, predicted Bill Kreher, an analyst with Edward Jones.

"There is still a lot of uncertainty" concerning some of the markets Cisco serves, he said, adding that Europe's economy "continues to be a drag." Nonetheless, Cisco CEO John Chambers was upbeat.

"I am pleased with our execution," he said during a conference call with analysts. "We delivered another quarter of solid, profitable growth." Cisco sells switches, routers, servers, security devices, videoconference gear and other computer networking equipment to businesses and government agencies. It is Silicon Valley's fourth biggest company in terms of sales and widely considered a key barometer for the technology industry.

But Cisco has been under financial pressure in recent years due to the sluggish worldwide economy and growing competition in some of the markets it serves. In July last year, it announced it was restructuring its business and trimming expenses, in part by laying off about 1,300 employees, roughly 2 percent of its global workforce. Just a year earlier, the company announced 6,500 layoffs.

More recently, Cisco has issued cautiously upbeat financial forecasts, and in December, Chambers expressed optimism, saying he expected the company to boost its annual sales by 5 to 7 percent over the next few years.

He said he expects some of the growth to come from software, and to help boost sales in that area, Cisco in recent months has snapped up software companies. In addition, Chambers has said Cisco hopes to make more money by providing consulting services and from the growing array of household, industrial, medical and other gadgets being connected to the Internet.

In a recent note to their clients, Baird Equity Research analysts offered an optimistic take on the company.

"Based on our fieldwork we believe Cisco has been able to execute well following its restructuring, despite a challenging macroeconomic environment." Analysts at Raymond James also sounded relatively upbeat about Cisco. But they warned in a recent note that the economy "remains weak and this likely affects network equipment spending in 2013." Cisco's sales to government agencies was a particular worry, they say, given "uncertainty around balancing the budget and raising the debt limit." Contact Steve Johnson at [email protected] or 408-920-5043. Follow him at Twitter.com/steveatmercnews.

___ (c)2013 San Jose Mercury News (San Jose, Calif.) Visit the San Jose Mercury News (San Jose, Calif.) at www.mercurynews.com Distributed by MCT Information Services

[ Back To TMCnet.com's Homepage ]