(JNPR) Juniper Delivers Mixed Third Quarter Earnings

Juniper Networks Inc. (JNPR) posted adjusted earnings per share (EPS) of 19 cents in the third quarter of 2011, missing the Zacks Consensus Estimate by a penny.


Juniper Networks’ revenues rose 9.0% year over year to $1.11 billion in the reported quarter. The company generated 77.9% of its consolidated quarterly revenue from product sales, while the remaining 22.1% came from service revenues. Both product and services revenues increased 7.6% and 15.4%, respectively, from the year-ago quarter.

Revenue by Segment

Total Infrastructure revenue increased 12.1% on a year-over-year basis. Products revenue slipped 0.02% while Service Layer Technologies Services revenue spiked 1.1% year over year in the reported quarter.

Revenue by Region

The Americas contributed 50.3% to revenues while 28.1% came from the EMEA region, which comprises Europe, Middle East and Africa. The Asia-Pacific region accounted for the remaining 21.5% of revenues in the reported quarter.

Operating Results

On a GAAP basis, Juniper Networks’ gross margin was 64.4% in the third quarter versus 66.9% in the year-ago quarter. Excluding amortization of intangibles, non-GAAP gross margin in the quarter was 64.9%, versus 67.0% in the year-ago quarter.

Operating margin on a GAAP basis was 12.4% versus 19.3% in the year-ago quarter while non-GAAP operating margin was 14.5% versus 19.7% in the year-earlier quarter. Non-GAAP operating expenses increased 16.0% on a year-over-year basis. However, total operating expense increased at a faster pace compared to revenue growth, which resulted in the decline in operating margin.

Net income on a GAAP basis was $83.7 million compared with $134.5 million in the prior-year quarter. Excluding special items such as restructuring charges, amortization, acquisition related charges, non-recurring income tax adjustments, non-GAAP net income in the quarter was $102.8 million, up from $137.6 million reported in the year-ago quarter. Net income per share on a non-GAAP basis was 19 cents, down from 25 cents reported in the comparable quarter last year.

Balance Sheet & Cash Flow

Total cash, cash equivalents and investments in the third quarter of 2011 were $4,130.3 million compared with $4,220.5 million in the second quarter of 2011. Juniper generated net cash from operations of $185.2 million, compared with net cash provided by operations of $318.3 million in the second quarter of 2011. Days sales outstanding in accounts receivable (“DSO”) was 36 days in the third quarter of 2011, compared with 39 days in the prior quarter and 42 days in the year-ago quarter.

Fourth Quarter Guidance

Juniper estimates revenue in the range of $1.160 billion to $1.220 billion for the fourth quarter of 2011. Moreover, non-GAAP gross margin is expected to range between 65.0% and 67.0%. Non-GAAP operating margin is expected in the range of 21.0% to 23.0%. Juniper estimates non-GAAP net income per share between 32 cents and 36 cents on a diluted basis, assuming a flat share count and non-GAAP tax rate of 27.5%.

Our Take

Juniper delivered mixed third quarter results, with revenues improving on a year-over-year basis. However, EPS remained below our estimates. The company’s continued launch of new products and entry into new markets will keep Juniper ahead of its networking peers, in our view.

We believe that increased spending by key carriers, such as AT&T Inc. (T) and Verizon Inc. (VZ) as well as the ongoing enterprise share gains, fueled by the EX switch and SRX security platforms, will pave the way for healthy profitability going forward. Moreover, strategic alliances and new acquisitions are positives for Juniper. However, stiff competition from industry stalwarts, such as Cisco Systems Inc. (CSCO) and Hewlett-Packard Company (HPQ), coupled with Juniper’s European exposure will likely weigh on the stock.

Currently, Juniper has a Zacks #3 Rank, implying a short-term Hold rating.

CISCO SYSTEMS (CSCO): Free Stock Analysis Report

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