Shares of Cisco Systems (CSCO) gained Wednesday after the company’s fiscal second-quarter earnings showed something that has been missing for a while — a growing top line.
“In Q2, we returned to revenue growth,” Chairman CEO Chuck Robbins told investors in a call after the market close.
Cisco’s revenue, which had declined for eight consecutive quarters according to FactSet, grew 3% to $11.9 billion, beating a consensus forecast of $11.8 billion. Earnings of 63 cents per share topped expectations of 59 cents per share, on a non-GAAP basis excluding stock option expenses.
Shares rallied 6.5% to $44.95 after the market close amid signs that a turnaround may be taking hold.
Among other positive notes in the quarter, Cisco’s Catalyst 9000 router is catching on. “The Catalyst 9000 is the fastest ramping product in our history,” Robbins told investors, noting that its count of 3,100 customers doubled over the prior year.
The router comes with a multi-year software subscription, which contributes to Cisco’s focus on software and services with recurring revenues. Recurring revenue made up 33% of total sales in the quarter, an increase of 2 percentage points from the prior year.
Illustrating Cisco’s new direction, Robbins said the company is developing a new cyber-risk-management product with Apple (AAPL) , German insurer Allianz, and London consultant and insurance group Aon.
Software revenues will benefit from Cisco’s $1.9 billion purchase of cloud communications outfit BroadSoft Inc., which closed in early February and did not contribute to fiscal second-quarter results.
Cisco expects revenues to grow 3% to 5% in the fiscal third quarter, exceeding expectations.
“The strong third-quarter guidance reflects the contribution from the BroadSoft acquisition, but even without this impact, Cisco would report another quarter of growth on another easy comparison,” Edward Jones analyst David Heger said in a research note following the report. “The company is making steady progress moving to a subscription-based revenue model, but we believe that in the near term it could particularly benefit from improved corporate network spending due to improved worldwide economic growth and tax-reform-related investment in the U.S.”
Cisco has a trove of cash overseas, and benefits from the lowered tax rate on repatriated earnings.
Of Cisco’s $73.7 billion in cash at the end of the quarter, more than $71 billion is stashed offshore. Cisco plans to repatriate $67 billion of the offshore funds in the fiscal third quarter.
With the influx of funds, CFO Kelly Kramer said Cisco is bumping its dividend up by four cents to 33 cents per share. The company is also adding $25 billion to its stock buyback plan, bringing the total repurchasing target to $31 billion over the next 18 to 24 months.
While the repatriated cash will fund dividends and buybacks, Daniel Ives of GBH Insights noted that it could also be a catalyst for M&A in a research note following Cisco’s report.
“Acquisitions are a critical part of, and always have been, of our overall strategy,” Kramer said, noting that even after the dividends and buybacks Cisco’s cash will exceed its debt by $10 billion to $12 billion. “From a capital allocation perspective,” she added, “we’re going to continue to be looking for the acquisitions that we can drive value and drive growth with.”