Cisco Systems (CSCO), a holding within the value component of the US Growth Portfolio, has announced first-quarter results overnight, with shares falling in after-hours trading as investors reacted to a cut in 2024 revenue and earnings guidance by management.
Shares declined as much as 16% before paring back losses to around 10% in after-hours trading. This follows the company’s announcement of a reduced revenue forecast for the 2024 fiscal year, with expectations now set between US$53.8 billion and US$55.0 billion, down from the previously projected range of US$57 billion to US$58.2 billion.
The company’s adjusted earnings per share (EPS) for 2024 are also revised, now anticipated to be between US$3.87 and US$3.93, compared to the initial forecast of US$4.01 to US$4.08. This adjustment reflects a more cautious outlook than estimates of US$4.06. This overshadowed what was a relatively positive first quarter, with revenue growth of 7.6% year-on-year to US$14.67 billion modestly above estimates, and EPS of US$1.11, 7.7% above the US$1.03 forecast.
For the coming quarter, Cisco anticipates revenues to be in the range of US$12.6 billion to US$12.8 billion, notably lower than the expected US$14.2 billion. The forecast for adjusted EPS is set at US$0.82-US$0.84, falling short of estimates of US$0.99.
Cisco attributes the slowdown in new product orders to customers focusing on installing and implementing products following strong delivery in the past three quarters. CFO Scott Herren expressed optimism about a potential acceleration in product order growth rates in the latter half of the year, as customers complete implementations.
Amidst these challenges, Cisco is working to diversify its business, notably through its US$28 billion acquisition of Splunk, a data-analysis software maker. This move is part of Cisco’s strategy to expand its portfolio with additional services like network health monitoring and cybersecurity, aiming to close the deal by the end of the third quarter of 2024.
While the lowered guidance is disappointing, CSCO’s inclusion in the US Growth portfolio is based on fundamentals such as profitability and remains one of the higher quality stocks within the US large-cap space. For now, CSCO remains an active buy/hold recommendation within the portfolio, which will next be rebalanced on December 1st.