Why Cisco Systems Shares Are Plunging After Hours - Company Shocks With Revenue Outlook

Cisco Systems Inc CSCO reported third-quarter sales of $12.8 billion, flat year-over-year, missing the consensus of $13.34 billion.

Product revenue was up 3% Y/Y and service revenue down 8% Y/Y. Annualized Recurring Revenue (ARR) was $22.4 billion, up 11% Y/Y in Q3.

Cisco announced its intention to stop business operations in Russia and Belarus for the foreseeable future. The total negative impact to revenue was ~$200 million in Q3.

Q3 adjusted EPS was $0.87, marginally beating the consensus of $0.86. 

Adjusted total gross margin, product gross margin, and service gross margin were 65.3%, 64.1%, and 68.9%, compared with 66.0%, 64.9%, and 68.7%, 3Q21.

Adjusted operating income was $4.5 billion (+4% Y/Y), with a non-GAAP operating margin of 34.7%.

Cash flow from operating activities for Q1 totaled $3.7 billion, a decrease of 6% Y/Y. Cisco's cash and cash equivalents and investments totaled $20.1 billion at the end of the quarter.

Remaining Performance Obligations (RPO) were at $30.2 billion, up 7% in total, with 54% of this amount to be recognized as revenue over the next 12 months. Deferred revenue was $22.3 billion, up 7% Y/Y.

"Our product backlog is well over $15 billion, and product ARR and RPO again grew double digits. The continued progress in our business model transformation reflects the success of our strategy and underpins our long-term confidence," stated Scott Herren, CFO of Cisco.

Q4 Guidance: Cisco expects revenue to decline (1)% to (5.5)% year over year; it expects EPS of $0.60 to $0.70 and Non-GAAP EPS of $0.76 to $0.84, well below vs. consensus of $0.92.

FY22 Guidance: The company sees revenue growth of 2% to 3% year over year; It expects EPS of $2.75 to $2.85 and Non-GAAP EPS of $3.29 to $3.37 vs. consensus of $3.44.

Price Action: CSCO shares are trading lower by 13.70% at $41.74 during the post-market session on Wednesday.