Shares of Cisco Systems (CSCO) plunged 7.3% Thursday to end the session at $44.91 after the release of its accounts for the fiscal first quarter. The US manufacturer of networking equipment released Wednesday night, after the Wall Street, the first quarter results that were better than analyst expectations, but it provided downbeat guidance.
For the current second quarter, Cisco now expects adjusted earnings per share of 75 to 77 cents and a 3% to 5% decline in sales. Factset’s consensus analysts have so far been expecting a 79 cent EPS and sales of $12.75 billion, up 2.4% over the same period of 2018.
In the first fiscal quarter, the group posted net income of $2.93 billion (68 cents per share) down 17.5% from $3.55 billion in the first quarter of 2018 (77 cents per share). However, the adjusted EPS was 84 cents higher than analysts’ expectations (81 cents).
The revenue of the first quarter amounted to $13.16 billion against $13.07 billion a year earlier and $13.08 billion expected by the analysts.
JPMorgan lowered its price target from $62 to $58 and affirmed its overweight recommendation on Cisco after the announcement of quarterly results. The brokerage firm indicates that the forecasts are disappointing due to the deterioration of the macroeconomic situation. The firm notes, however, that software subscriptions, a key measure of transformation, continue to rise sharply.
Software subscriptions accounted for 71% of total software revenue in the first quarter of the year, already exceeding the 66% target set for fiscal year 2020. Software revenues are line with the objective of 30% of the total turnover at the end of the year.
The broker explains that the transformation leads to a better visibility on the sales and the results, as well as a better resistance to the contrary head winds.