Juniper Networks Inc. (JNPR) posted adjusted earnings per share (EPS) of 22 cents in the second quarter of 2011, missing the Zacks Consensus Estimate of 27 cents a share.
Revenues
Juniper Networks’ revenues rose 15.0% year over year to $1.12 billion in the second quarter. The company generated 79.5% of its consolidated quarterly revenue from product sales, while the remaining 20.5% came from service revenues. Both product and services revenues increased 15.2% and 12.2%, respectively, from the year-ago quarter.
Revenue by Segment
Infrastructure Products revenue increased 12.3%, Infrastructure Services revenue rose 15.5%; Service Layer Technologies Products revenue slipped 8.3% while Service Layer Technologies Services revenue jumped 9.6% on a year-over-year basis in the reported quarter.
Revenue by Region
The Americas contributed 51.6% to revenues while 29.3% came from the EMEA region comprising Europe, Middle East and Africa. The Asia-Pacific region accounted for the remaining 19.1% of revenues in the reported quarter.
Operating Results
On a GAAP basis, Juniper Networks’ gross margin was 64.4% in the second quarter versus 67.5% in the year-ago quarter. Excluding amortization of intangibles and stock-based compensation, non-GAAP gross margin in the quarter was 65.6%, down from 67.9% reported in the year-ago quarter.
Operating margin on a GAAP basis was 15.3% versus 18.9% in the year-ago quarter while the non-GAAP operating margin was 21.6% versus 23.9% reported in the year-earlier quarter. Non-GAAP operating expenses increased 14.4% 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.
Juniper has managed expenses efficiently as the company continues to focus on launching the next level of strategic products.
Net income on a GAAP basis was $115.6 million compared with $130.5 million reported 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 $123.0 million, up from $129.8 million reported in the year-ago quarter. Net income per share on a non-GAAP basis was 22 cents, up from 24 cents reported in the comparable quarter last year.
Balance Sheet & Cash Flow
Total cash, cash equivalents and investments, as of the second quarter of 2011, were $4,220.5 million compared with $4,083.5 million, as of the first quarter of 2011. Juniper generated net cash from operations of $318.3 million in the reported quarter compared with $239.7 million in the first quarter of 2011.
Moreover, days sales outstanding in accounts receivable (DSO) were 39 days in the second quarter of 2011 compared with 38 days in the prior quarter. Juniper repurchased approximately 3.9 million shares in the second quarter of 2011 at an average price of $38.94 per share or approximately $150.0 million.
Guidance
Juniper estimates revenue in the range of $1.070 billion to $1.120 billion for the third quarter of 2011. Moreover, the company’s non-GAAP gross margin is expected to range between 65.0% and 67.0% for the third quarter. Non-GAAP operating margin for the third quarter is projected in the range of 19.0% to 21.0%. Juniper estimates non-GAAP net income per share between 26 cents and 30 cents on a diluted basis, assuming a flat share count and non-GAAP tax rate of 27.0%.
Our Take
Juniper delivered mixed first quarter results, with revenues improving on a year-over-year basis. However, EPS remained below our estimates. The company continued launch of new products and entry into new markets will keep Juniper ahead of its networking peers. 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 #5 Rank, implying a short-term Strong Sell rating.
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