It has been about a month since the last earnings report for Cisco Systems (CSCO Quick QuoteCSCO - Free Report) . Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

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

Cisco Q3 Earnings Top Estimates, Revenues Down Y/Y

Cisco Systems reported third-quarter fiscal 2024 non-GAAP earnings of 88 cents per share, which beat the Zacks Consensus Estimate by 6.02%. The bottom line fell 12% year over year.

Revenues decreased 12.8% year over year to $12.70 billion but beat the consensus mark by 1.71%. Product revenues (71% of total revenues) decreased 18.6% on a year-over-year basis to $9.02 billion.

Splunk contributed $413 million of total revenues in the reported quarter. Networking revenues declined 27% year over year to $6.52 billion. Security revenues were $1.30 billion, up 36% year over year. Collaboration revenues were unchanged at $987 million. Observability revenues increased 27% to $211 million.

Service revenues (29% of total revenues) inched up 5.7% year over year to $3.68 billion.
 
Subscription revenues were $6.9 billion and accounted for 54% of total revenues.

Quarter in Detail

Region-wise, America’s revenues decreased 15% year over year to $7.37 billion and missed the consensus mark by 0.7%.

EMEA revenues declined 9% year over year to $3.46 billion but beat the consensus mark by 5.08%.

APJC revenues decreased 12% year over year to $1.87 billion and missed the consensus mark by 1.79%

Annualized recurring revenues came in at $29.2 billion, up 22% year over year. Product ARR surged 44% year over year.

Non-GAAP gross margin expanded 310 basis points (bps) from the year-ago quarter’s level to 68.3%.

On a non-GAAP basis, the product gross margin expanded 240 bps to 66.9%. Service gross margin increased 430 bps to 71.6%.

Non-GAAP operating expenses were $4.32 billion, down 5.1% year over year. As a percentage of revenues, operating expenses increased 280 bps year over year to 34%.

Non-GAAP operating margin expanded 30 bps year over year to 34.2%.

Balance Sheet and Cash Flow

As of Apr 27, 2024, Cisco’s cash & cash equivalents and investments balance were $18.8 billion compared with $25.67 billion as of Jan 27, 2024.

Total debt (short-term plus long-term) as of Apr 27, 2024, was $32 billion, higher than $11.61 billion as of Jan 27, 2024.

Cash flow from operating activities was $4 billion, higher than the $0.8 billion reported in the previous quarter.

The remaining performance obligations (“RPO”) at the end of the fiscal third quarter were $38.8 billion, up 21%, with 52% of this amount to be recognized as revenues over the next 12 months. Product RPO increased 29% year over year, while service RPO increased 14%.

In the reported quarter, Cisco returned $2.9 billion through share repurchases and dividends. It bought approximately 26 million shares for $1.3 billion. The share repurchase program has $7.2 billion remaining under authorization.

Guidance

For fourth-quarter fiscal 2024, revenues are expected to be between $13.4 billion and $13.6 billion.

Non-GAAP gross margin is anticipated between 66.5% and 67.5% for the quarter.

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

Non-GAAP earnings are anticipated between 84 cents and 86 cents per share.

For fiscal 2024, revenues are expected between $53.6 billion and $53.8 billion. Non-GAAP earnings are anticipated between $3.69 and $3.71 per share.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Cisco has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. 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 D. 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. Notably, Cisco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Cisco belongs to the Zacks Computer - Networking industry. Another stock from the same industry, NETGEAR, Inc. (NTGR Quick QuoteNTGR - Free Report) , has gained 14.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

NETGEAR reported revenues of $164.59 million in the last reported quarter, representing a year-over-year change of -9%. EPS of -$0.28 for the same period compares with -$0.19 a year ago.

NETGEAR is expected to post a loss of $0.82 per share for the current quarter, representing a year-over-year change of -412.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +4.6%.

NETGEAR has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.