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Juniper (JNPR) Q4 Earnings Beat Estimates, Revenues Lag

Zacks Equity Research

Juniper Networks, Inc. JNPR reported mixed fourth-quarter 2018 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. The computer network equipment maker’s financial performance was mainly driven by sales growth in Enterprise business, decrease in total cost of revenues and income tax benefit.

Net Income

On a GAAP basis, net income increased to $192.2 million or 55 cents per share from net loss of $148.1 million or loss of 40 cents per share in the year-earlier quarter, primarily due to lower operating costs and income tax benefit. For 2018, GAAP net income increased 85.1% year over year to $566.9 million owing to higher income tax provision in 2017.

Non-GAAP net income for the reported quarter was $205.7 million or 59 cents per share compared with $199.4 million or 53 cents per share a year ago. The year-over-year increase was primarily attributable to healthy gross margin, continued cost control and a lower tax rate. 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. Quote

Revenues

Quarterly total net revenues were $1,181 million compared with $1,239.5 million in the prior-year quarter. This was primarily due to weakness with several of the company’s cloud and service provider customers, which more than offset solid momentum in its enterprise business. The top line lagged the Zacks Consensus Estimate of $1,229 million. For 2018, total net revenues decreased 7.6% year over year to $4,647.5 million.

Product revenues (comprising Routing, Switching and Security, and accounting for 65.8% of total net revenues) for the quarter decreased 6.5% year over year to $776.7 million due to lower routing and switching businesses. Service revenues (accounting for 34.2% of total net revenues) were down 1.2% to $404.3 million due to the impact of the adoption of ASC 606.

By vertical, net revenues from Cloud business declined 8.3% year over year to $237.5 million due to slower-than-expected pace of deployments. Net revenues from Service Provider business were down 14.9% to $516.4 million, primarily due to the weakness in Americas, partly offset by strength in EMEA (Europe, Middle East, and Africa). Net revenues from Enterprise business climbed to $427.1 million from $373.4 million driven by strength across all geographies and technologies.

Geographically, net revenues increased to $344 million from $324.5 million in EMEA supported by healthy performance in Enterprise business. Quarterly revenues in the Americas decreased 10% year over year to $634.8 million due to decline in Service Provider and Cloud business. For Asia Pacific, net revenues decreased 3.4% to $202.2 million.

Other Quarter Details

Total cost of revenues declined from $488.3 million to $470.1 million. Gross profit came in at $710.9 million compared with $751.2 million in the year-ago quarter, primarily due to lower revenues. Operating income was $196.8 million compared with $202.7 million. Non-GAAP operating income decreased to $248.7 million from $280.8 million, with margin of 21.1% and 22.7%, respectively.

Cash Flow and Liquidity

For full-year 2018, Juniper generated $861.1 million of cash from operations compared with $1,259.3 million in the prior-year period. As of Dec 31, 2018, the company had $2,489 million of cash and cash equivalents with $1,789.1 million of long-term debt compared with the respective tallies of $2,006.5 million and $2,136.3 million a year ago.

Concurrent with the results, Juniper announced an expansion of its capital return plan. The company’s board of directors has declared an increase in quarterly cash dividend to 19 cents per share, payable Mar 22 to shareholders of record as on Mar 1. This reflects an increase of around 6% from previous quarterly dividends. Furthermore, Juniper plans to enter into an approximately $300 million accelerated share repurchase program as part of its $2 billion authorized share repurchase approval in January 2018. The company aims to create shareholder value and remains committed to return 75% of its free cash flow to shareholders in 2019.

Outlook

Juniper has provided its guidance for first-quarter 2019. The company expects soft demand to continue in its cloud business. It expects non-GAAP gross margins toward the low-end of long-term model due to lower revenue, product mix and the impact of China tariffs. The company expects revenues of approximately $980 million (+/- $30 million). Non-GAAP gross margin is projected to be around 58.5% (+/- 1%). Non-GAAP operating expenses are expected to be nearly $485 million (+/- $5 million). The company expects non-GAAP operating margin to be around 9% at the midpoint of revenue guidance. Non-GAAP net income is anticipated to be approximately 20 cents per share (+/- 3 cents), assuming a share count of nearly 349 million.

For 2019, Juniper expects a non-GAAP tax rate to be almost flat compared with 2018 (+/- 1%). Non-GAAP earnings per share are expected to be between $1.75 and $1.85.

Moving Forward

Despite some short-term challenges, particularly within the cloud vertical and risks related with partial U.S. federal government shutdown and geopolitical uncertainty, Juniper expects encouraging developments in most areas of its business that augur well for its long-term growth.

Moreover, Juniper has made significant changes to its go-to-market structure to better align its sales strategies to each of its core customer verticals. It is on the verge of introducing several new products over the next few quarters, which are expected to further strengthen its competitive position across service provider, cloud and enterprise market. Offerings include new MX line card that will strengthen its ability to capitalize on carrier 5G initiatives, new 400 gig platform that will improve its ability to capture data centric footprint particularly in the cloud, and new enhancement to its Contrail Enterprise Multicloud platform that will help its mid to large enterprise customers transition to a multicloud world with increased simplicity and reduced cost. It is also planning to introduce new silicon photonics capability that will likely enhance its competitive position. It believes the 400 gig upgrade cycle, 5G deployment and enterprise multicloud initiatives hold huge opportunities where it is well-positioned to benefit over the next several years.

Zacks Rank and Stocks to Consider

Juniper currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Comtech Telecommunications Corp. CMTL, Ericsson ERIC and PCTEL, Inc. PCTI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.          

Comtech has a long-term earnings growth expectation of 5%.

Ericsson currently has a forward P/E (F1) of 21.2x.

PCTEL currently has a forward P/E (F1) of 65.6x.

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