Juniper Networks (JNPR) reported third-quarter 2014 adjusted earnings of 22 cents, which lagged the Zacks Consensus Estimate of 26 cents. Also, the reported earnings were flat on a year over year basis primarily due to lower revenue base, partially offset by expansion in margins and lower operating expenses
The company also completed the sale of the Junos Pulse business for $250 million to Siris Capital on Oct 2.
Revenues
Juniper’s revenues decreased 5% from the year-ago quarter to $1.13 billion and came in line with the Zacks Consensus Estimate. Total revenue was impacted by weaker-than-expected demand from U.S. service providers.
Product revenues (72% of third quarter revenues) were down 10.1% year over year, which also impacted quarterly results. However, services revenues increased 11.1% on a year-over-year basis and comprised 28% of third quarter revenues.
Juniper’s revenues from Routing products came in at $533.2 million, down 12.5% year over year, primarily due to weak performance in the carrier market (both core and edge).
Also, revenues from Security products were down 15.9% from the year-ago quarter to $121.3 million due to a significant decrease in security software and SRX platform and security software revenues. Nevertheless, robust demand for the QFX product series, Juniper’s revenues from Switching products increased 5% year over year to $155 million.
Geographically, revenues from the Americas were up 2.3% on a year-over-year basis. On the other hand, revenues from EMEA and Asia Pacific were down 5.2% and 27.9%, respectively, on a year-over-year basis.
Operating Results
Juniper’s gross margin came in at 63.5% in the third quarter versus 62.9% in the year-ago period, primarily due to a favorable product mix. Adjusted operating margin improved from 13.9% to 15.5% year over year due to lower operating expenses as a percentage of revenues. Operating expenses decreased from 50.2% to 49.5% as a percentage of revenues, primarily due to stringent cost controls.
The company reported adjusted net income (including stock-based compensation but excluding amortization, restructuring, acquisition-related and other expenses on proportionate tax basis) of $97.8 million, which decreased from $111.1 million reported in the year-ago quarter.
Balance Sheet
Juniper exited the quarter with total cash, cash equivalents and investments of $1.92 billion compared with $2.62 billion in the previous quarter. Long-term debt was $1.35 billion, flat sequentially. Juniper declared a quarterly cash dividend of 10 cents per share, payable on Dec 23, 2014.
Guidance
Juniper expects fourth-quarter revenues in the range of $1.025 to $1.075 billion, down sequentially. The Zacks Consensus Estimate is pegged at $1.175 billion. Non-GAAP gross margin is expected around 64% (+/- 0.5%).
The company expects non-GAAP operating expenses to be $480 million (+/- $5 million), down from the previous quarter, whereas non-GAAP operating margin will likely be 18.5%. Non-GAAP earnings per share are expected to range between 28 cents and 38 cents (mid-point 33 cents), higher than the Zacks Consensus Estimate of 31 cents at the mid-point.
Our Take
Juniper delivered tepid third-quarter results with the bottom line missing the Zacks Consensus Estimate and the top line matching the same. The company also provided a tepid fourth-quarter revenue guidance.
We remain encouraged by the company’s product launches, cost reduction initiatives and improving execution.. Juniper’s expansion into the software defined network segment is expected to strengthen its position in the networking space.
However, charges related to the company’s restructuring initiatives are expected to impact near-term profitability. Competition from Cisco (CSCO) and F5 Networks (FFIV) also remains a concern. Delays in large projects also remain an overhang on the stock.
Currently, Juniper carries a Zacks Rank #5 (Strong Sell).
Alternately, investors can consider Marvell Technology Group Ltd. (MRVL), a better-ranked technology stock carrying a Zacks Rank #1 (Strong Buy).
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