Networking equipment maker and telecom equipment industry bellwether, Cisco Systems, (CSCO - Free Cisco Stock Report) has reported better-than-expected January-quarter adjusted earnings per share of $0.57. That figure was $0.03 above our call and 8% more than last year's tally (5% excluding the reinstatement of the federal R&D tax credit). Investors applauded the results and bid depressed CSCO stock sharply higher.
Despite currency headwinds, the top line advanced 2% year over year, to $11.8 billion (excludes the divested customer premises equipment business). Product sales and orders increased at the same pace, and the company made progress with shifting the mix toward recurring software and subscription businesses. Meanwhile, Services revenues increased 3%. Both business arms had solid profitability. Operating cash flow increased 36%. Cisco returned 75% of its first half cash flow to shareholders through a split of buybacks and dividends. We expect more of the same as the dividend was increased 24% (currently yields 4.2%) and another $15 billion share-repurchase authorization was announced.
The company's largest segment, Switching, fell victim to macroeconomic uncertainty and the turbulent markets, as enterprise customers across the globe took pause on delayable purchases toward the end of the quarter. After experiencing an 8% revenue decline in the prior period, the Routing business bounced back with a 5% advance, driven by service provider investment. Collaboration sales were up 3%, as a 17% advance from the WebEx business offset some weakness from Unified Communications. Data center results fell 3% owing to a difficult comparison (40% growth last year) and a slowdown in spending. The Wireless business was flat as growth in cloud-managed Meraki access points offset traditional fare. Service Provider Video experienced strong demand from China, resulting in a 37% sales advance. Finally, Security was up a healthy 11% thanks to advance threat and Web protection products.
From a geographical perspective, the Americas were flat; Europe, the Middle East, and Africa fell 1%; and Asia Pacific, Japan, and China grew 17%. China was up 64% alone, with strength across all product categories. Cisco credits diversifying the customer base beyond state-owned enterprises and targeting smaller cities for the impressive number.
Taking a look at customer segments, service providers spent 5% more than last year, enterprises 2% less, commercial 4% more, and the public sector about the same. We think the most meaningful takeaway is that service provider spending rose for the third quarter in a row, after a protracted period of declines.
The company's revenue guidance range was one percentage point wider than normal owing to macroeconomic uncertainty and the pause some customers took in January. Revenue is expected to grow 1%-4%, but that includes a 2% benefit from an additional week in the quarter. NonGAAP share earnings ought to land between $0.54 and $0.56, which compares with our call of $0.55 and last year's $0.54 result.
We are pleased with Cisco's performance in this difficult operating environment. The company's ability to turn around a previously sluggish China operation speaks to its product quality and marketing prowess, as well as the value a one-stop shopping experience adds. Cisco always has been good at getting ahead of technology transitions, and we believe current investments in cloud, software as a service, Internet of things, data center, security, and analytics are all examples of that. The requisite nature of Cisco's products makes the company more appealing in this turbulent market environment. Those looking for a defensive tech company that pays a healthy dividend should consider Cisco, in our view.
About The Company: Cisco Systems Incorporated is a leading provider of Internet Protocol-based networking and other products for transporting data, voice, and video across geographically dispersed local-area networks, metropolitan-area networks, and wide-area networks. Devices are primarily integrated by Cisco IOS Software and include Routers, Switches, New Products, and Other. The company also provides services associated with these products.