Juniper Beats 1Q Est, Rev Up

Zacks

Juniper Networks Inc. (JNPR) posted adjusted earnings per share (EPS) of 20 cents in the first quarter of 2013, surpassing the Zacks Consensus Estimate of 15 cents.

Revenues

Juniper’s first-quarter 2013 revenues inched up 2.6% to $1.06 billion from the year-ago quarter. Revenues were down 7% sequentially. The sequential decline in revenues can be attributed to lower business compared to the previous quarter. Contribution from the American Service Providers was strong. Moreover, Juniper has witnessed good business from AT&T (T) and Verizon (VZ) both contributing about 10.0% of the company’s total revenue.

Juniper generated 73.8% of its consolidated quarterly revenue from product sales, which dropped 1.3% from the year-ago quarter. The remaining 26.2% came from service revenues, which grew 6.5% on a year-over-year basis.

Revenue by Region

As per geographic segments, the Americas contributed around 55.9%, Europe, the Middle East and America (:EMEA) generated 27.4% and Asia-Pacific (:APAC) provided 16.7% to total revenue. On a year-over-year basis, revenues from the Americas were up 11.4%, reflecting Service Provider growth.

EMEA revenues were down 5.4% year over year. The decline can be attributed to lower Enterprise revenues. Further, sluggish business in Eastern Europe drove the downside. The company is facing challenge in the region.

Operating Results

On a GAAP basis, Juniper Networks’ gross margin was 63.3% in the first quarter versus 61.4% in the year-ago quarter.

Operating margin was 8.2% versus 4.6% in the year-ago quarter. Operating expenses declined to $87.0 million, driven by lower research & development expense and sales & marketing expense.

Net income was $91.0 million compared with $16.3 million in the prior-year quarter. Excluding special items such as restructuring charges, amortization, acquisition-related charges, non-recurring income tax adjustments, but including stock-based compensation expenses, non-GAAP adjusted net income in the quarter was $101.5 million or 20 cents per share versus $34.7 million or 6 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Total cash, cash equivalents and investments in the reported quarter were $2.66 billion compared with $2.85 billion in the previous quarter. Long-term debt was $999.2 million, roughly flat sequentially. Cash used in operations is $8.9 million, down sequentially from cash flow of $155.0 million. DSO for the company was at 45 days in the quarter, up from 35 days in the last quarter, due to constant shipment.

Second-Quarter 2013 Guidance

Juniper expects second-quarter revenues in the range of $1,070–$1,100 million, with non-GAAP gross margin in the range of 64%–65%. The company expects non-GAAP operating expenses to be $510 million, plus or minus $5.0 million, whereas the non-GAAP operating margin will likely be 17.5%. Moreover, the non-GAAP earnings per share will range between 22 cents and 26 cents.

Summary

Juniper is a leading provider of networking devices and technology. The company delivered decent first-quarter 2013 results, beating the Zacks Consensus Estimate on the bottom line. However, year-over-year comparisons were not too encouraging. Cash position is also a reason for concern and the company experienced negative operating cash flow, while the debt level remains constant.

The company is trying to add new products to its portfolio, focus on revenue growth as well as cost reduction initiatives specially aided by reducing headcount and improving execution on supply chain and procurement activities. Moreover, the competition is also heating up as the company faces tough competition from F5 Networks (FFIV), CiscoSystems (CSCO). We believe that Juniper is well positioned in the networking space and could capitalize on much of the worldwide spending on information technology.

The company has a Zacks Rank #4 (Sell).

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