A month has gone by since the last earnings report for Cisco Systems (CSCO Quick QuoteCSCO - Free Report) . Shares have added about 2.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cisco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Cisco's Q1 Earnings Top Estimates, Revenues Up Y/Y

Cisco Systems reported first-quarter fiscal 2024 non-GAAP earnings of $1.11 per share, which beat the Zacks Consensus Estimate by 7.77%. The bottom line jumped 29.1% year over year.

Revenues increased 7.6% year over year to $14.69 billion and beat the consensus mark by 0.4%. Product revenues (75.9% of total revenues) increased 8.7% on a year-over-year basis to $11.14 billion.

Networking revenues rose 10% year over year to $8.822 billion. Security revenues were $1.01 billion.

Collaboration revenues increased 3% to $1.12 billion. Observability revenues increased 21% to $190 million.

Service revenues (24.1% of total revenues) inched up 4.2% year over year to $3.53 billion.

Quarter in Detail

Region-wise, America’s revenues increased 14% year over year to $9.022 billion and beat the consensus mark by 5.45%. EMEA revenues were flat at $3.66 billion but lagged the consensus mark by 5.52%. APJC revenues decreased 3% year over year to $1.982 billion but missed the consensus mark by 8.05%

Annualized recurring revenues came in at $24.5 billion, up 5% year over year. Product ARR increased 10% year over year.

Non-GAAP gross margin expanded 410 basis points (bps) from the year-ago quarter’s level to 67.1%.

On a non-GAAP basis, the product gross margin expanded 550 bps to 66.5%. Service gross margin increased 20 bps to 69%.

Non-GAAP operating expenses were $4.47 billion, up 5.3% year over year. As a percentage of revenues, operating expenses decreased 70 bps year over year to 30.5%.

Non-GAAP operating margin expanded 480 bps year over year to 36.6%.

Balance Sheet and Cash Flow

As of Oct 28, 2023, Cisco’s cash & cash equivalents and investments balance were $23.5 billion compared with $26.15 billion as of Jul 29, 2023.

Total debt (short-term plus long-term) as of Oct 28, 2023, was $7.65 billion.

Cash flow from operating activities was $2.4 billion, lower than the $6 billion reported in the previous quarter.

The remaining performance obligations (“RPO”) at the end of the fiscal first quarter were $34.8 billion, up 12%, with 51% of this amount to be recognized as revenues over the next 12 months. Product RPO was up 14% and service RPO was up 11%.

Guidance

For second-quarter fiscal 2024, revenues are expected to be between $12.6 billion and $12.8 billion.

Non-GAAP gross margin is anticipated between 65% and 66% for the quarter. Non-GAAP operating margin is expected between 31.5% and 32.5% for the quarter.

Non-GAAP earnings are anticipated between 82 cents and 84 cents per share.

For fiscal 2024, revenues are expected between $53.8 billion and $55 billion. Non-GAAP earnings are anticipated between $3.87 and $3.93 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -16.67% due to these changes.

VGM Scores

Currently, Cisco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cisco has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.