Shares of Cisco (NASDAQ: CSCO) rallied 5% on Thursday after the networking equipment vendor posted fiscal first-quarter 2018 earnings that topped analysts' estimates. Revenue fell 2% annually to $12.14 billion, but beat expectations by $30 million. Non-GAAP earnings stayed flat at $0.61 per share, but still topped estimates by $0.01 per share. GAAP earnings rose 4% to $0.48 per share.

The key facts

Cisco's earnings beat didn't seem big enough to justify a 5% pop, but investors were seemingly impressed by the growing weight of its recurring revenues, which accounted for 32% of its top line (up three percentage points from a year earlier), its 8% growth in security revenues, and its 10% jump in deferred revenues.

Simply put, its higher-growth businesses with recurring revenues -- like security and collaboration software -- could offset slower sales of its core routers and switches, which are now lumped together under its infrastructure platforms unit.

During the quarter, revenue from infrastructure platforms fell 4% annually to $6.97 billion, its applications revenue grew 6% to $1.2 billion, and its security revenue rose 8% to $585 million. However,its "other products" revenue fell 16% to $296 million, and revenue still fell year over year across all three of its major geographic sales regions (Americas, Asia Pacific, and Europe/Middle East/Africa).

Cisco finished the quarter with $71.6 billion in cash, but just $2.5 billion of that total is held in the U.S. Like other multinational tech giants with large quantities of cash overseas, it's clearly been holding out for a tax break on repatriated funds. If corporations receive such a deal, Cisco would likely bring some or all of that cash back home, where it would be available buybacks, dividends, and domestic acquisitions.

The outlook

For its fiscal second quarter, Cisco expects 1% to 3% annual sales growth and 2% to 5% earnings growth. Both figures match analysts' expectations, and strongly indicate that its days of negative to flat growth are over. For the full fiscal year, analysts expect Cisco's revenue and earnings to rise 1% and 3%, respectively.

Those figures might seem anemic, but the growth should set a floor under the stock, which trades at just 15 times forward earnings and pays a forward yield of 3.4%. Therefore, Cisco might still be a solid play for conservative income investors.

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The author(s) may have a position in any stocks mentioned.

 

Leo Sun owns shares of Cisco Systems.

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