Cisco Systems, Inc. : Cisco Boosts Dividend in Face of Weak European Demand
08/15/2012| 06:22pm US/Eastern
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--Payout increase follows first-ever dividend 17 months ago
--Earnings top downbeat May guidance
--European, federal spending remain weak
(Updates with fiscal first-quarter guidance, details on dividend and background throughout.)
By Drew FitzGerald
Cisco Systems Inc. (CSCO) raised its quarterly dividend 75% after cost controls and market-share gains pushed the network equipment maker's earnings above its downbeat expectations.
The San Jose, Calif., company's fiscal fourth-quarter earnings climbed 56%, helped by falling operating expenses and despite continued declining demand from European customers and the U.S. federal government. Chief Executive John Chambers reiterated the company's pessimistic view of those sectors, saying European revenue should continue to fall for at least a couple quarters.
Nonetheless, investors applauded the dividend boost, pushing Cisco's stock up 5.2% to $18.26 after hours. The company raised its quarterly dividend to 14 cents a share, more than double its first-ever dividend of 6 cents unveiled in March 2011.
Cisco has been working to regain investors' confidence after it launched a massive restructuring plan last year to focus on core product areas such as routing and switching gear that shuttle data between computers. Mr. Chambers' discouraging May commentary on European business spending sent its stock tumbling.
Demand in Europe will continue to be "as tough as you're hearing," Mr. Chambers said Wednesday, adding "we don't want to get ahead of ourselves" by predicting sharply stronger results in the current quarter.
As the world's dominant maker of networking devices that support Internet traffic, Cisco is often used as a barometer for the state of companies' technology spending plans.
Cisco forecast a core profit between 45 cents and 47 cents a share for the current quarter on 2% to 4% revenue growth, bracketing analysts' average targets of 46 cents and 4% growth, respectively. The company's forecast excluded its recently closed $4 billion acquisition of video-software provider NDS.
The company also committed to returning at least half of its annual free cash flow through dividends and share buybacks, boosting the yield of a company once considered a fast-moving technology giant.
"They certainly have ample cash, so it would probably be a safe move for them to do," JMP Securities analyst Erik Suppiger said.
The company has boosted profits with rigorous cost controls. Cisco last month said it would lay off about 1,300 employees, or 2% of its work force, though the company also has hired engineers in other positions at the same time.
For the quarter ended July 28, Cisco posted a profit of $1.92 billion, or 36 cents a share, up from $1.23 billion, or 22 cents a share, a year earlier. Excluding stock-based compensation, restructuring charges and other items, per-share earnings rose to 47 cents from 40 cents. Revenue increased 4.4% to $11.69 billion.
Cisco's downbeat projection in May called for adjusted earnings between 44 cents and 46 cents a share and revenue growth between 2% to 5% from prior-year levels.
Gross margin narrowed to 60.6% from 61.3% as input costs rose 6.3%. Operating expenses fell 13% as restructuring-related charges fell sharply.
--Nathalie Tadena contributed to this story.
Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com
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