Cisco today said it will take a $600 million charge associated with layoffs and restructuring of its businesses. 

In an 8-K filing for its fiscal first-quarter, the company announced a restructuring plan “in order to rebalance the organization and enable further investment in key priority areas. This rebalancing will include talent movement options and restructuring.” The company said it will make some real estate changes as well.

During a financial call with analysts, CEO Chuck Robbins talked briefly about the restructuring but said employees will hear more details on Thursday.

“I'd be reluctant to go into a lot of detail here until we're able to talk to [employees]. I would say that what we're doing is rightsizing certain businesses,” Robbins said. 

Cisco is focused on moving resources into the enterprise networking space and accelerating its platform strategy, Robbins added. “We will be making significant investments in security and beefing up our teams there, and the capacity to continue to innovate there. Those are important areas,” he said.

CFO Scott Herren also commented on the restructuring plan:

Cisco's (CSCO -1.08%) stock price jumped 5% on Thursday, Nov. 17, after the networking hardware and software giant posted its latest earnings report. For the first quarter of fiscal 2023, which ended on Oct. 29, Cisco's revenue rose 6% year over year to $13.63 billion and beat analysts' estimates by $340 million. Its adjusted earnings rose 5% to $0.86 per share, which also cleared the consensus forecast by two cents.

Does that steady growth indicate Cisco's stock is worth buying again after being buffeted by macroeconomic headwinds over the past year? Let's review its previous challenges and its accurate progress to decide.

Why were investors thinking about Cisco?

Last September, Cisco set some promising long-term goals during its investor day presentation. It predicted its revenue and adjusted EPS would both increase at a compound annual growth rate (CAGR) of 5% to 7% between fiscal 2021 and 2025, driven by the expansion of its subscription-based software and cybersecurity businesses.

But over the past year, Cisco's secure and agile networks division (which houses its switches, enterprise routers, and other wireless and access point hardware) struggled with supply chain disruptions, component shortages, and rising freight costs. The growth of that segment -- which generated 46% of its revenue last year -- decelerated throughout all of fiscal 2022 and declined 1% year over year in the fourth quarter. Its collaboration business, which brought in 9% of its revenue last year, also continued to wither as it struggled to keep pace with Zoom Video Communications  and Microsoft Teams.

Those headwinds offset the stable growth of its end-to-end security and optimized applications businesses (16% of its fiscal 2022 revenue) as well the inorganic growth of the internet of the future division (10% of its revenue), which had been driven by its acquisition of Acacia Communications last March. As a result, Cisco's revenue growth flatlined in the third and fourth quarters of fiscal 2022 -- which cast a dark cloud over its ambitious investor day targets.

Why did Cisco's latest report clear away those clouds?

Cisco's first quarter report allayed those fears for three reasons. First, its secure and agile networks revenue rose 12% year over year -- on top of its 10% growth a year ago -- driven by strong sales of its networking hardware and a gradual easing of the supply chain headwinds. Its end-to-end security and optimized applications segments also continued to grow.

Those improvements boosted Cisco's revenue by 6% year over year during the first quarter. It expects that momentum to continue with 4.5%-6.5% growth in both the second quarter and the full year. CFO Scott Herren also reaffirmed the company's investor day goals of achieving 5%-7% revenue and earnings growth over the "long term" during the conference call.

Second, Cisco's margins are stabilizing. Its adjusted gross margin still shrank 150 basis points year over year to 63% in the first quarter -- mainly due to the impact of supply chain headwinds on its product gross margins -- but only declined 30 basis points sequentially. That compares favorably to its sequential drop of 200 basis points in the fourth quarter of 2022. Looking ahead, Cisco expects its adjusted gross margin to finally rise sequentially to 63%-64% in the second quarter. That's a bright green flag that suggests its supply chain headwinds are finally dissipating.

Lastly, that gross margin expansion prompted Cisco to provide upbeat earnings guidance for the rest of fiscal 2023. It expects its adjusted EPS to increase 0%-2% in the second quarter, and to rise 4%-7% for the full year. That's slightly higher than its prior full-year guidance for 4%-6% growth.

Cisco's stock is finally worth buying again

Cisco's stock lost more than a quarter of its value this year as investors fretted over its supply chain challenges and shrinking gross margins. However, its first-quarter report suggests those problems are transitory -- and that it's still well-poised to generate stable growth for the foreseeable future.

At $46 per share, Cisco trades at just 13 times this year's earnings. It also pays an attractive forward dividend yield of 3.3%, which accounts for less than half of its projected EPS for fiscal 2023. By comparison, Cisco's smaller rival Juniper Networks also trades at 13 times forward earnings but pays a lower forward dividend yield of 2.8%.

Cisco certainly isn't a stock for growth-oriented investors. However, investors who are looking for a stable blue-chip tech stalwart that is cheap and generates consistent dividends should consider picking up some shares today. 

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems, Microsoft, and Zoom Video Communications. The Motley Fool has a disclosure policy.

Networking-equipment giant Cisco Systems (CSCO -1.08%) reported results this Wednesday, covering the first quarter of fiscal-year 2023. The company generated adjusted earnings of $0.86 per diluted share, surpassing Wall Street's consensus earnings estimate of $0.84 per share.

Investors and analysts applauded Cisco's strong results, and the stock price closed 5% higher on Thursday. However, I don't see a ton of headlines mentioning one of Cisco's most shareholder-friendly qualities: The company is shoveling billions of dollars straight into the pockets of shareholders. I'm particularly impressed by Cisco's effective use of stock buybacks.

Cisco's buybacks make a difference

Fun fact: If not for the anti-dilutive effects of the buyback program, Cisco would barely have satisfied the consensus-earnings target.

Cisco's adjusted net income increased by 2% year over year, landing at $3.5 billion. At the same time, the stock-repurchasing program reduced the share count by 12 million stubs in the first quarter. The canceled stock adds up to 127 million shares on a trailing basis, which works out to a 3% reduction.

In a world where Cisco doesn't worry about share-count reductions, this-quarter's earnings would have landed at $0.84 per share, but only by the skin of its proverbial teeth. With three significant digits, you'd be looking at earnings of $0.856 per share, a rounding error away from missing the analyst target.

OK, that's no surprise

The lower share count shouldn't surprise anyone, especially since the bulk of this-year's buybacks fell in the second quarter of 2022. That period was covered in last-February's earnings update, giving everybody nine months to update their earnings estimates accordingly. The exercise above is just a bit of calculator-based entertainment, illustrating how generous Cisco's buyback program really is.

Cisco has invested an average of $1.1 billion per quarter in stock buybacks over the last three years. Dividend payments averaged $1.6 billion per quarter over the same period. That adds up to $1.69 billion of cash per quarter, sent right back to shareholders in the form of buybacks and dividends. Free cash flows in this time span averaged $3.53 billion per quarter, so the shareholder-bound cash returns consumed 48% of Cisco's average cash profits.

CSCO Stock Buybacks (Quarterly) data by YCharts.

Cisco loves to share its cash profits with you, the shareholder

This generous cash return is no accident. Cisco has a history of generating massive cash flow and sharing them freely with stock owners.

On the earnings call, Cisco CFO Scott Herren said that the dividend-payout and buyback activity were "in line with our long-term objective of returning a minimum of 50% of free cash flow annually to our shareholders." That's been an official Cisco policy since the fourth quarter of 2019, three years ago.

I love seeing this shareholder-friendly policy in a veritable cash machine such as Cisco Systems. Even in an off-year like 2022, the company amassed $12.8 billion of trailing free cash flows -- and sent half of it right back to shareholders.

CSCO Free Cash Flow data by YCharts.

Today, Cisco's stock comes with a shrinking share count and a beefy dividend yield of 3.3%. You should expect the dividend payments to continue rising modestly over the years, while buybacks are adjusted to meet that 50% cash-sharing ambition, year by year. These qualities make Cisco a great buy for income investors, who value a free-flowing stream of cash profits and a tight commitment to cash-based profit sharing.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool has a disclosure policy.

Cisco is set to unveil a new edition of its SD-WAN software that will extend the system’s reach and include new management capabilities.

Among the most significant enhancements to Cisco SD-WAN release 17.10, expected in December, is the ability to use Cisco SD-WAN Multi Region Fabric (MRF) support with existing Software Defined Cloud Interconnect (SDCI) systems to significantly expand the reach and control of the SD-WAN environment. 

MRF lets customers divide their SD-WAN environments into multiple regional networks that operate distinctly from one another, along with a central core-region network for managing inter-regional traffic, according to Cisco. 

SDCI technology is used to link enterprise resources to a variety of cloud, network, and internet service providers. Cisco customers could use SDCI with their SD-WAN deployments in the past but not MRF.

By combining the two technologies and using the Cloud OnRamp Multicloud Interconnect Gateway in Cisco SD-WAN software, customers can now set network, configuration and security policies across a wide variety of locations from a central site. Cisco’s SD-WAN Cloud OnRamp links branch offices or individual remote users to cloud applications such as Cisco’s Webex, Microsoft 365, AWS, Google, Oracle, Salesforce and more.

Customers can now assign regions and roles to SD-WAN edges deployed within SDCI infrastructure, and they can segment MRF regions into multiple sub-regions and share border routers between these sub-regions, allowing for better redundancy and failover-centric network designs, according to John Joyal, senior manager, product and solutions marketing with Cisco's enterprise SD-WAN and routing group. (Joyal wrote a blog about Cisco's SD-WAN MRF enhancements.)