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Juniper (JNPR) Q3 Earnings Beat Estimates, Revenues Down Y/Y

Zacks Equity Research

Juniper Networks, Inc. JNPR reported mixed third-quarter 2019 financial results, wherein the bottom line topped the Zacks Consensus Estimate but the top line missed the same. Both earnings and revenues decreased on a year-over-year basis.

Net Income

On a GAAP basis, net income for the September quarter declined to $99.3 million or 29 cents per share from $223.8 million or 64 cents per share posted in the prior-year quarter, primarily due to provision for income tax.

Non-GAAP net income was $166.6 million or 48 cents per share compared with $191 million or 54 cents per share reported a year ago. The bottom line beat the Zacks Consensus Estimate by 2 cents.

Juniper Networks, Inc. Price, Consensus and EPS Surprise

Juniper Networks, Inc. Price, Consensus and EPS Surprise

Juniper Networks, Inc. price-consensus-eps-surprise-chart | Juniper Networks, Inc. Quote

Revenues

Quarterly total net revenues were $1,133.1 million (slightly below the midpoint of the company’s guidance range) compared with $1,179.8 million reported in the prior-year quarter. This was due to weaker-than-expected trends within its service provider business. Challenges within this vertical more than offset healthy cloud and enterprise sales, both of which grew year over year. The top line lagged the consensus estimate of $1,142 million.

Product revenues (comprising Routing, Switching and Security, and accounting for 65.6% of total net revenues) for the quarter decreased 6.5% year over year to $743.2 million due to lower routing business. Service revenues (accounting for 34.4% of total net revenues) were up 1.2% to $389.9 million.

By vertical, net revenues from Cloud business increased 5.8% year over year to $271.9 million, reflecting momentum within Juniper’s customers’ wide area network, particularly from some of its switching products. Net revenues from Service Provider unit were down 17% to $452.5 million, due to ongoing challenges many of the company’s carrier customers are facing.

Net revenues from Enterprise business increased to $408.7 million from $377.4 million. However, the company experienced a deceleration in order toward the end of the reported quarter, which is leading it to moderate its expectations for the rest of 2019. This slowdown was due to lingering effects associated with the sales transformation actions Juniper took earlier this year and weakening in the customer spending environment.

Geographically, net revenues declined to $301.5 million from $329.9 million in Europe, Middle East, and Africa. Quarterly revenues in the Americas increased 0.9% year over year to $648.8 million. For Asia Pacific, net revenues decreased 11.6% to $182.8 million.

Other Details

Gross profit came in at $678.4 million compared with $711 million in the year-ago quarter primarily due to lower revenues. Total operating expenses decreased from $550.9 million to $539.9 million. Operating income was $138.5 million compared with $160.1 million. Non-GAAP operating income declined to $207.3 million from $235.4 million, with margin of 18.3% and 20%, respectively.

Concurrent with quarterly results, Juniper communicated that its board of directors has approved a $1 billion stock buyback authorization increase. This adds to the existing buyback authorization, which has $900 million remaining for a total of $1.9 billion. The company also plans to enter a $200 million accelerated share repurchase program in the ongoing quarter.

Cash Flow & Liquidity

During the first nine months of 2019, Juniper generated $433.2 million of net cash from operations compared with $648.7 million in the year-ago period. As of Sep 30, 2019, the computer network equipment maker had $1,204.8 million in cash and equivalents with $1,687.6 million of long-term debt.

Q4 Outlook

Juniper has provided its guidance for fourth-quarter 2019. The company expects to witness business challenges at some of its largest service provider customers, lingering impacts from its sales force transformation and macro-economic uncertainty. It anticipates revenues of $1,185 million (+/- $30 million). Non-GAAP gross margin is projected to be around 61% (+/- 1%), which indicates the increase in China tariffs.

Non-GAAP operating expenses are expected to be nearly $485 million (+/- $5 million). The company expects non-GAAP operating margin to be around 20.1% at the midpoint of revenue guidance. Non-GAAP net income is anticipated to be approximately 57 cents per share (+/- 3 cents), assuming a share count of almost 340 million. Non-GAAP tax rate is likely to be 17%, due to the anticipated reduction in India’s corporate tax rate.

Zacks Rank & Stocks to Consider

Juniper currently has a Zacks Rank #4 (Sell). A few better-ranked stocks in the broader industry are Ubiquiti Inc. UI, PCTEL, Inc. PCTI and Harmonic Inc. HLIT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   

Ubiquiti surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 19.4%.

PCTEL surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 146.4%.

Harmonic surpassed earnings estimates in each of the trailing four quarters, the average surprise being 119.9%.

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