The networking giant posted adjusted earnings of 60 cents per share and $11.94 billion in revenue on Wednesday after market close, surpassing Wall Street's projected 58 cents per share and $11.9 billion.
Still, that bright spot was overshadowed by Cisco's announcement that it expects fourth-quarter revenue to fall 4% to 6% year-over-year, a deceleration that CEO Chuck Robbins attributed to weak product orders in its public sector business, particularly those that come from the federal government.
A sales deceleration of 4% to 6% implies revenue between $11.9 billion and $12.1 billion, according to Reuters, which is below consensus estimates of $12.5 billion. With little budget visibility, Robbins said on an earnings call with investors that those headwinds comprise a significant chunk of the slowdown in sales.
"It's a pretty significant stall right now with the lack of budget visibility," Robbins said.
Cisco's orders in the public sector unit (which also includes sales to state and local governments) also fell 4% during the third quarter. In addition to that, Cisco announced it would cut 1,100 more jobs, on top of the 5,500 jobs the company slashed last August.
While the pullback in shares is disappointing, these "hiccups can happen" when a company as big as Cisco undertakes a massive restructuring plan," TheStreet's Jim Cramer, who owns Cisco in the Action Alerts PLUS portfolio, wrote in a recent post.
Wall Street analysts also remained largely optimistic. Here's what they had to say about the quarter:
Brian White, Drexel Hamilton (Buy, Price Target lowered to $39 from $40)
"We believe this morning's sell-off provides another buying opportunity given Cisco's rich dividend yield, attractive valuation, expanding recurring revenue contribution, consistent margin execution and prime position as a beneficiary of potential revisions in repatriation policies."
Mark Moskowitz, Barclays (Overweight, $34 PT)
"There was goodness in Apr-Q results, as recurring product deferred revenue accelerated to 57% Y/Y growth. The partial offset in the near term is that the shift to a subscription based model could be having a deflationary impact as a larger mix of revenue heads to the balance sheet first. This is explainable, though, and nothing to fret, in our view."
Jeffrey Kvaal, Nomura (Neutral, PT lowered to $29 from $30)
"Cisco followed a solid F3Q with guidance for a sales decline well below consensus. This may be more than temporary. Cisco passed when pressed on long-term growth, steeled us for a multi-year transition, and its limited optimism rang hollow."
Tim Long, BMO Capital Markets (Market Perform, PT lowered to $32 from $35)