On Nov. 7, networking giant Cisco Systems (NASDAQ:CSCO) released first-quarter 2008 earnings for the period ended Oct. 27, 2007.

  • You may have noticed that Cisco's stock price dropped more than 6% this morning, erasing approximately over $10 billion of its market cap. Whatever the reason, the company beat sales and earnings estimates. Pro forma EPS was $0.40 vs. the $0.36 target, so these numbers can't be blamed.
  • Seen another way, the drop canceled about three months' worth of gains.
  • Cisco widened every important margin, and all cash flows were fatter than the GAAP net profit.
  • The share count was just about the only thing moving in the wrong direction. Cisco took on a tiny bit more debt, too, but the cash balance increase easily makes up for that.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2008

Q1 2007

Change

Sales

$9,554

$8,184

16.7%

Net Profit

$2,205

$1,608

37.1%

EPS

$0.35

$0.26

34.6%

Diluted Shares

6,330

6,199

2.1%

Get back to basics with the income statement.

Margin Checkup

Q1 2008

Q1 2007

Change*

Gross Margin

64.6%

63.9%

0.7

Operating Margin

24.8%

24.3%

0.5

Net Margin

23.1%

19.7%

3.4

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2008

Q1 2007

Change

Cash + ST Invest.

$24,679

$19,520

26.4%

Accounts Rec.

$3,418

$3,417

0%

Inventory

$1,315

$1,477

(11%)

Liabilities

Q1 2008

Q1 2007

Change

Accounts Payable

$820

$869

(5.6%)

Long-Term Debt

$6,582

$6,455

2%

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2008

Q1 2007

Change

Cash From Ops.

$3,089

$2,271

36%

Capital Expenditures

$296

$214

38.3%

Free Cash Flow

$2,793

$2,057

35.8%

Owner Earnings

$2,330

$1,742

33.8%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Cisco

$188,630

26.4

*****

Nokia (NYSE:NOK)

$156,220

16.7

*****

Juniper Networks (NASDAQ:JNPR)

$16,970

61.9

***

Nortel Networks (NYSE:NT)

$8,120

NM

*

CIENA (NASDAQ:CIEN)

$4,000

64.8

***

Using the latest reported numbers from Capital IQ, a division of Standard & Poor's.

Keep your partners close and the competition in your vest pocket.

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