Cisco beats estimates; revenue jumps
The networking company also announces that CFO Larry Carter plans to retire in May, and predicts flat to slight sales growth for the next quarter.
The networking equipment company also revealed that Chief Financial Officer Larry Carter, 59, plans to retire next May. Dennis Powell, vice president of corporate finance, will replace him. During a conference call, CEO John Chambers said he hopes to convince Carter, who has been CFO since 1995, to remain with the company longer. No reason was given for the early retirement.
Including one-time costs, Cisco reported fourth-quarter net income of $772 million, or 10 cents per share, compared with $7 million, or breakeven, during the same time last year. Excluding costs, the company earned $1 billion, or 14 cents a share, compared with a profit of $163 million, or 2 cents per share, a year ago.
Wall Street analysts expected Cisco to earn 12 cents per share, according to a survey by First Call.
Fourth-quarter revenue rose 12 percent from $4.3 billion last year to $4.8 billion this year. Cisco executives said corporate sales remain "steady," while the service provider market remains "challenged."
In after-hours trading, Cisco's stock jumped $1.69 at 13.05, according to the Island ECN Web site, which tracks trading. The stock closed at $12.07 before the announcements.
"It was a solid quarter for Cisco," Chambers said in a conference call with financial analysts Tuesday. "This was the fourth best pro-forma net income in our history in the most challenging (time) our market has ever faced."
Chambers said sales to customers in federal government, education, retail and banking grew, while revenue from service providers and the high-tech and banking sectors fell.
Chambers predicted flat to a slight increase in sales for the first quarter. If Cisco sales increase, it will be a percentage growth in the single digits, Carter added. "I'm a little more cautious than last year. Our customers are a little bit more cautious, and their visibility (of economic changes) may be contracting," Chambers said. "The vast majority of our enterprise customers have tight controls on spending and even freezes. Yet, our global enterprise business grew reasonably well over the last year. Visibility remains limited."
"This was another solid quarter for Cisco, despite ongoing challenges in the economy," Chambers said in a statement.
In addition, the network equipment giant Tuesday announced plans to repurchase an additional $5 billion in stock by September of next year. Cisco's board of directors in September of last year authorized the repurchase of $3 billion in stock. Of the $8 billion total, so far only $2 billion worth of stock has been repurchased.
Because of Cisco's bellwether status in the networking industry, investors have looked forward to the San Jose, Calif.-based company's report for any signs that the technology downturn may be finally bottoming out.
Chambers remained optimistic about the long-term, saying that when the economy rebounds, he expects sales to businesses to take off first, followed by sales to service providers several quarters later. "While no one can say when the economy will turnaround, when it does turn around, we believe we are well-positioned to take advantage."
Chambers dismissed rumors that he would resign, saying he plans to stay at the helm of Cisco for years to come. Last week, Cisco's stock fell 8 percent amid rumors Chambers would leave Cisco.
"I have no intention to leaving Cisco. I plan to be here (for) multiple years. Retirement isn't something I'm thinking about. I'm very excited about our future. I plan to work here for quite a while," he said.
Tuesday's results marks the fourth-straight quarter the company has met or surpassed analyst expectations since issuing a profit warning in April 2001. Cisco has weathered the downturn much better than rivals Nortel Networks and Lucent Technologies, partly because Cisco gets the majority of its revenue from corporate customers, rather than from ailing telecommunications service providers as its rivals do.
Excluding one-time costs, the network equipment maker earned $2.9 billion, or 39 cents per share, for the fiscal year. That compares with $3.1 billion, or 41 cents a share, for the same period a year ago. Revenue for the year, which ended July 27, fell 15 percent to $18.9 billion, compared with $22.3 billion in same period a year ago.
Including costs, Cisco posted yearly net income of $1.9 billion, or 25 cents per share, compared with a net loss of $1 billion, or 14 cents per share, last year.
Aside from Cisco's all-important outlook, analysts are also expected to pore over the company's fourth quarter and fiscal year figures in upcoming days. Following accounting fraud at WorldCom, companies are facing more scrutiny about accounting.
Backing the numbers
Aug. 14 is the Securities and Exchange Commission deadline for CEOs and CFOs to certify their financial results. Ahead of Cisco's report, rumors swirled that Chambers and CFO Larry Carter wouldn't certify results. The company shot down such talk.
Given that Cisco's fiscal year ended July 27, later than many companies, Cisco has more time to certify its results--and expects to certify by late September, Cisco executives said Tuesday.
"We have been very supportive with the substance and intent of the new requirements. We have no hesitancy (in) signing the certification," Chambers said.
Analysts said Cisco's previous accounting methods are what's causing concern. Notably, Cisco took a $2.25 billion inventory write-down in May 2001 and has brought back reserves to help quarters in 2002. To its credit, however, Cisco has largely allayed those concerns by disclosing more about its financials and improving operations.
"Cisco has come under criticism in the past for its financial accounting," said Alex Henderson, an analyst at Salomon Smith Barney in a research note. "We believe most of these issues are largely behind the company, but some investors may be hesitant about making greater commitments to the stock until overall market sensitivity to accounting issues subsides."
News.com's Larry Dignan contributed to this story.