Cisco Systems Inc. (CSCO - Get Report) shares traded higher Thursday after the network equipment maker posted stronger-than-expected third quarter earnings and said tariff increases on China-made goods wouldn't affect its near-term profit outlook.
Cisco said adjusted earnings for the three months ending on April 27, the company's fiscal third quarter, came in at 77 cents a share, up 18% from the same period last year and topping the Street consensus forecast by a penny. Group revenues rose 4% to 13 billino, Cisco said, lead by a 21% surge for security division sales that offset a smaller 9% gain for the software division's topline.
"If you remember back many months ago when the 10% tariffs were announced we said, we had basically three phases to our strategy," CEO Chuck Robbins told investors on a conference call late Wednesday. "The first was we would continue the dialogue with the administration to make sure they understand the impact."
"The second is, we'll continue to do what we've always done which is optimize our supply chain which we've been doing for the last 20 years. And then the third is, we will make pricing adjustments where necessary if needed," he added.
"Operationally all that we needed to do is now behind us," Robbins continued. "And we see very minimal impact at this point based on all the great work the teams have done and it is absolutely baked into our guide going forward."
Cisco's flagship infrastructure platform business saw revenues rise 5% to $7.55 billion, the company said, and a planned boost in 5G investments, although not likely to hit full swing until 2020, will nonetheless help fourth quarter revenues rise between 4.5% and 5.5%.
Cisco also said changes to its supply chain have reduced its impact to U.S. tariffs on China-made goods, which will rise to 25% in the coming weeks.
"Cisco believes the increase to 25% from 10% will have minimal impact and fully contemplated the tariffs in their guide as the company has already executed on everything needed to mitigate tariffs from an operational standpoint, and this reconciles with what we have been hearing from both IT resellers and Cisco channel sales partners," said Credit Suisse analyst Sami Badri, who boosted his price target on the stock by $5 a share to $57 following last night's earnings release while keeping a market neutral rating.