Juniper Networks (JNPR) posted adjusted earnings per share (EPS) of 6 cents in the first quarter of 2012, missing the Zacks Consensus Estimate by a penny.
Revenues
Juniper Networks’ revenues declined 6.27% year over year to $1.03 billion in the reported quarter. The company generated 74.8% of its consolidated quarterly revenue from product sales, while the remaining 25.2% came from service revenues. Product revenues declined 12.0%, whereas services revenues increased 16.3%, from the year-ago quarter.
Revenue by Region
As per geographic segments, Americas contributed around 51.5% to the total revenue, EMEA was 29.7% and APAC was 18.8%. Revenue from the American region was up 2.0% sequentially but declined 8.6% year over year. The sequential growth was fueled by large orders from U.S. service providers, while the annual decline was mainly due to regional and content service providers, offset to a considerable extent by good Enterprise growth.
EMEA revenue was up 2.4% year over year, but down 23% sequentially. This sequential decline happened as a result of high base effect, as the company witnessed record Q4 revenue and also as a result of decline in Service Provider revenue in Southern and parts of Central Europe.
APAC revenue decreased 11.8% year over year. In the Asia Pacific region, Japan exhibited sequential growth as a result of better performance of the Service Provider, but the year-over-year decline happened as the company reported a strong quarter last year as the company completed a large Service Provider deployment.
Operating Results
On a GAAP basis, Juniper Networks’ gross margin was 61.4% in the first quarter versus 66.8% in the year-ago quarter. The company’s product gross margin continues to be negatively impacted by the product and geographic mix. This apart, gross margin was also impacted by inventory-related costs.
Operating margin on a GAAP basis was 4.6% versus 16.1% in the year-ago quarter. Compared with the last quarter, operating expenses increased substantially to $523.0 million, driven by higher employee expenses. The company ended the quarter with 9,218 employees, up 89 sequentially and added to the operating expenses.
Net income on a GAAP basis was $16.3 million compared with $129.8 million in the prior-year quarter. Excluding special items such as restructuring charges, amortization, acquisition related charges, non-recurring income tax adjustments, non-GAAP adjusted net income in the quarter was $34.6 million or 6 cents.
Balance Sheet & Cash Flow
Total cash, cash equivalents and investments in the first quarter of 2012 were $3,430.5 million compared with $3,551.7 million in the fourth quarter of 2011. Juniper generated cash from operations of $102.3 million in the quarter, down from $239.6 million in the prior year.
Days Sales Outstanding (DSO) was 39 days in the quarter, down from 46 days last quarter, but in line with 38 days in the first quarter of last year. The company repurchased 2.4 million shares at an average price of $21.75, totaling $516.6 million.
Second Quarter 2012 Guidance
The company expects second quarter revenue in the range of $1,030.0 million to $1,060.0 million. Non-GAAP gross margin and non-GAAP operating expenses will be roughly in line with the first quarter level. Non-GAAP operating margin for the second quarter is expected in the range of 12.0% and 14.0%. Moreover, non-GAAP net income per share will range between $0.15 and $0.17 on a diluted basis.
Conclusion
Juniper delivered unimpressive first quarter results, with revenues declining on a year-over-year basis and EPS falling below our expectation. The company’s operating performance was also mediocre, as Juniper was not able to control its operating expense as a result of an increase in headcount. The company’s revenue in the EMEA and American region moved up and the company provided impressive second quarter guidance.
Although strategic alliances and new acquisitions are positives for Juniper, stiff competition from industry stalwarts, such as Cisco Systems Inc. (CSCO) and Hewlett-Packard Company (HPQ), coupled with high European exposure will likely weigh on the stock.
Juniper has a Zacks #2 Rank, implying a short-term Buy rating.
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