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Cisco Soars on $15 Billion Share Buyback Plan

Oh, and by the way, it beat Q2 earnings and revenue expectations too.

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Shares of Cisco Systems rose by 7 percent after hours as the company reported second-quarter sales and earnings that beat the estimates of analysts, boosted its dividend payment and said it would buy back $15 billion worth of shares.

Cisco rose to $24.05 in after-hours trading after closing at $22.51 during the regular session. Earnings per share were 62 cents versus the consensus view of 54 cents. Sales, at $11.9 billion, were flat from the prior year, but beat the consensus view slightly.

What surprised investors was the aggressive new $15 billion commitment to buy back shares. Cisco already had a repurchase program on the books worth $97 billion and had already bought back about $80 billion over the years. The new authorization brings the total that Cisco can buy back to about $17 billion.

Cisco also boosted its dividend payment to 26 cents a share from 21 cents. That amounts to a 333 percent increase in dividend payments since Cisco first started paying out six cents a share in 2011.

Revenue from the sales of products rose 2 percent, while revenue from services rose 3 percent. Security sales rose 11 percent. New routing rose 5 percent and collaboration rose 3 percent. Switching sales declined by 4 percent and sales into data centers fell 3 percent.

Gross margin, a closely watched indicator of profitability, rose to 64.2 percent from 62.4 percent in the year-ago quarter. Cisco said it expects per-share earnings in the range of 54 cents to 56 cents in Q3, which is in line with the 55-cent consensus view.

Update: In an interview with Re/code, Cisco CEO Chuck Robbins said the company saw a slowdown in activity during the final three weeks of its quarter. “The first 10 weeks came in exactly as we expected, but during the final three weeks we saw customers do what they always do when they get worried, which was to hold off on their plans,” he said.

That prompted the relatively conservative guidance for the third quarter.

Because of its global footprint and exposure to large corporate customers in many industries, Cisco often tends to be an early warning sensor for global economic conditions: What happens to Cisco happens to other companies one to two quarters later. To that end, Robbins said that while three months ago Cisco’s customers were worried about Europe and Asia, in Q2 those concerns started turning to the U.S. “You can say we began to see slight worries hitting the U.S. last quarter.”

Those worries have hammered stock prices in recent weeks, and also the valuations of privately held companies. And that provides an opportunity for cash-rich companies like Cisco to get busy buying other companies. Just last week Cisco paid $1.4 billion for Jasper, a cloud-based Internet of Things platform.

The plan for Jasper, Robbins said, is to marry its capabilities for selling services that connect cars and manufacturing equipment and robots to the Internet with Cisco’s reach into service providers and enterprise companies.

Robbins said Jasper is also an example of another priority for Cisco’s M&A strategy: Companies with recurring revenue streams. As a cloud service, Jasper bills its customers for what they use every month. It’s a portion of Cisco’s revenue that Robbins has promised to build out. “If you look at every acquisition we have closed recently, they all fit squarely into that model,” he said.

So is Cisco still on the hunt for more deals? It exited the quarter with $60.4 billion in combined cash and short-term investments, of which nearly $4 billion was available for use in the U.S. Robbins said Cisco will remain on the hunt: “You bet we are, especially at these valuations.”

Finally, every quarter I pick a song that describes Cisco’s quarter. It’s an old inside joke I shared with Robbins’ predecessor John Chambers, and became a recurring thing. This quarter, since Cisco brought the markets something unexpected — a big hike in the dividend and a $15 billion buyback all at once — I thought back to a surprising little something from the early 1990s.

Here’s Tag Team’s “Whoomp! (There It Is.)” Enjoy.

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