Juniper's Q3 Earnings In Line

Zacks

Juniper Networks Inc. (JNPR) reported adjusted earnings per share (including stock-based compensation but excluding amortization, restructuring, acquisition-related and other expenses) of 22 cents in the third quarter of 2013, which came in line with the Zacks Consensus Estimate. On a year-over-year basis, earnings improved 49.1%.

Revenues

Juniper’s third-quarter 2013 revenues increased 6.0% from the year-ago quarter to $1.19 billion. Reported revenues also surpassed the Zacks Consensus Estimate of $1.17 billion.

Juniper generated 76.0% of its consolidated quarterly revenues from product sales, which increased 7.5% from the year-ago quarter. The remaining 24.0% came from service revenues, which grew 1.7% on a year-over-year basis.

Geographically, revenues from the Americas’ were up 18.0% on a year-over-year basis while EMEA and Asia Pacific revenues were down 4.6% and 8.0% year over year, respectively.

On an end-market basis, Juniper’s revenues from service providers increased 11.8% from the year-ago quarter primarily due to higher spending from Juniper’s Tier 1 service provider customers and cable and Web 2.0 customers. Enterprise revenues were down 3.8% due to weaker-than-expected financial services and federal business.

Operating Results

Juniper Networks’ non-GAAP gross margin was 64.4% in the third quarter versus 65.6% in the year-ago, primarily due to lower product gross margins and services gross margins. Adjusted operating margin improved from 5.3% to 13.9% on a year-over-year basis due to lower operating expenses as a percentage of revenues. Operating expenses decreased from 56.4% to 50.7% as a percentage of revenues.

The company reported adjusted net income (including stock-based compensation but excluding amortization, restructuring, acquisition-related and other expenses) of $111.1 million or 22 cents, which increased from $74.2 million or 15 cents reported in the year-ago quarter.

Balance Sheet

Juniper exited the third quarter with total cash, cash equivalents and investments of $2.85 billion compared with $2.79 billion in the previous quarter. Long-term debt was $999.3 million, roughly flat sequentially.

Fourth-Quarter Guidance

Juniper expects fourth-quarter revenues in the range of $1.20 billion–$1.23 billion. Non-GAAP gross margin is expected to be approximately 64.5% (+/-0.5%).

The company expects non-GAAP operating expenses in the range of $510 million–$525 million, whereas the non-GAAP operating margin will likely be 22.0%. Non-GAAP earnings per share will range between 35 cents and 37 cents, well above the Zacks Consensus Estimate of 28 cents.

Our Take

Juniper delivered better-than-expected third-quarter 2013 results. The company provided encouraging fourth-quarter 2013 guidance and also expects good operating performance.

While the company’s new products, cost reduction initiatives and improving execution are positives, we remain cautious about the increasing competition from F5 Networks Inc. (FFIV), Cisco Systems Inc. (CSCO) and AT&T Network (T). Increased spending by service providers should also support the company’s near-term fundamentals. Juniper’s expansion into the software defined network segment is expected to strengthen the company’s position in the networking space.

Currently, Juniper carries a Zacks Rank #3 (Hold).

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