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Why Is Juniper (JNPR) Down 12.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Juniper Networks (JNPR). Shares have lost about 12.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Juniper due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Juniper’s Q2 Earnings In Line, Revenues Down Y/Y

Juniper reported lackluster second-quarter 2019 financial results, wherein both the top line and the bottom line decreased on a year-over-year basis.

Net Income

On a GAAP basis, net income for the June quarter decreased to $46.2 million or 13 cents per share from $116.5 million or 33 cents per share posted in the year-earlier quarter, primarily due to lower revenues and higher total operating expenses.

Non-GAAP net income was $139.5 million or 40 cents per share compared with $170.2 million or 48 cents per share reported a year ago. The bottom line matched the Zacks Consensus Estimate.

Revenues

Quarterly total net revenues were $1,102.5 million compared with $1,204.1 million reported in the prior-year quarter. This was primarily due to weakness within the service provider and enterprise verticals. The top line lagged the consensus estimate of $1,110 million.

Product revenues (comprising Routing, Switching and Security, and accounting for 64.8% of total net revenues) for the quarter decreased 13.5% year over year to $713.9 million primarily due to lower routing and switching businesses. Service revenues (accounting for 35.2% of total net revenues) were up 2.5% to $388.6 million.

By vertical, net revenues from Cloud business remained almost flat year over year at $285 million, reflecting slower-than-expected pace of deployments. Net revenues from Service Provider unit were down 14.8% to $447.2 million, due to the weakness in Asia Pacific and Americas. Net revenues from Enterprise business declined to $370.3 million from $394.8 million due to function of timing.

Geographically, net revenues decreased to $291.9 million from $308.9 million in Europe, Middle East, and Africa. Quarterly revenues in the Americas decreased 4% year over year to $648.8 million due to soft service provider business. For Asia Pacific, net revenues decreased 26.3% to $161.8 million.

Other Details

Gross profit came in at $636.8 million compared with $700.9 million in the year-ago quarter mainly due to lower revenues. Total operating expenses increased from $541.1 million to $554.4 million. Operating income was $82.4 million compared with $159.8 million. Non-GAAP operating income decreased to $174.4 million from $222.3 million, with margin of 15.8% and 18.5%, respectively.

Cash Flow & Liquidity

During the first six months of 2019, Juniper generated $248.2 million of net cash from operations compared with $441.4 million in the prior-year period. As of Jun 30, 2019, the computer network equipment maker had $1,381.3 million in cash and equivalents with $1,490.5 million of long-term debt.

Q3 Outlook

Juniper has provided its guidance for third-quarter 2019. The company expects soft demand to continue in its service provider business. It expects non-GAAP gross margins to be pressured by China tariffs, despite its ongoing mitigation efforts. It anticipates revenues of about $1,145 million (+/- $30 million). Non-GAAP gross margin is projected to be around 60% (+/- 1%). Non-GAAP operating expenses are expected to be nearly $488 million (+/- $5 million). The company expects non-GAAP operating margin to be around 17.5% at the midpoint of revenue guidance. Non-GAAP net income is anticipated to be around 46 cents per share (+/- 3 cents), assuming a share count of almost 348 million.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -16.84% due to these changes.

VGM Scores

Currently, Juniper has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Juniper has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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