Cisco (CSCO) reported fiscal first-quarter results after the close Wednesday that came in better than consensus expectations. We’re comfortable with our long-term projections for Cisco and are maintaining our above-market $22 fair value estimate.

Cisco's total revenue advanced 4.7% from the same period a year ago (slightly lower than the firm’s long-term expected pace), as both product and service sales expanded. Cisco’s widely-watched gross margin fell 160 basis points, to 61.2%, in the quarter, which was about in line with what we were expecting for the period. Though gross profit expanded and research and development investment slowed, the firm’s results were weighed down by over $200 million in restructuring and other charges during the period as Cisco tries to get its operations back on track.

As a result, operating income fell about 6% from last year’s quarter, while net income also tumbled by almost 8%. Diluted earnings per share came in at $0.33, down only a penny from last year, as share buybacks stemmed the decline. Non-GAAP net income, however, nudged up slightly from the same period a year ago and came in better than consensus forecasts. Cash flow from operations was excellent, increasing roughly $600 million from last year’s quarter. Total cash still stands at an astounding $44 billion.

Looking forward, Cisco indicated that it has completed the majority of its restructuring efforts, which, if true, should set the stage for the stock to continue to converge to our fair value estimate. For the current fiscal quarter, the firm expects revenue to advance as much as 8%, and earnings per share to reach $0.44. This outlook was above consensus forecasts.

<< Our 16-page Report on Cisco (CSCO)