Juniper Networks' (JNPR) shares were down 5.0% in after-hour trade on Tuesday after the company reported adjusted earnings per share of 27 cents in the second quarter of 2014, which lagged the Zacks Consensus Estimate of 28 cents.
Moreover, Juniper provided a tepid third-quarter revenue outlook. The company also sold the Junos Pulse business for $250.0 million to Siris Capital which is expected to be closed in the third quarter.
Revenues
Juniper’s revenues increased 6.9% from the year-ago quarter to $1.23 billion. Total revenue was positively impacted by higher product revenues (up 7.6% year over year) and services revenues (up 4.7% year over year).
Juniper’s revenues from Routing products came in at $617.8 million, up 6.9% year over year, primarily attributable to the solid performance of the MX products.
Buoyed by the robust demand for EX and QFX product series, Juniper’s revenues from Switching products jumped 24.7% year over year to $199.8 million. However, revenues from Security products were down 11.5% from the year-ago quarter to $111.6 million due to significant decrease in revenues from non-Junos-based security products which more than offset the increase In Junos-based security products.
Geographically, revenues from the Americas, EMEA and Asia Pacific were up 5.3%, 7.9% and 10.9%, respectively, on a year-over-year basis.
Operating Results
Juniper’s gross margin came in at 60.9% in the second quarter versus 62.6% in the year-ago period, primarily due to unfavorable product mix. Adjusted operating margin improved from 13.5% to 17.2% year over year due to lower operating expenses as a percentage of revenues. Operating expenses decreased from 49.8% to 46.7% as a percentage of revenues. During the quarter, the company incurred restructuring charges of $85.7 million.
The company reported adjusted net income (including stock-based compensation but excluding amortization, restructuring, acquisition-related and other expenses on proportionate tax basis) of $128.3 million or 27 cents, which increased from $108.0 million or 21 cents reported in the year-ago quarter.
Balance Sheet
Juniper exited the quarter with total cash, cash equivalents and investments of $2.62 billion compared with $2.96 billion in the previous quarter. Long-term debt was $1.35 billion, flat sequentially. Juniper initiated a quarterly cash dividend of 10 cents per share.
Guidance
Juniper expects third-quarter revenues in the range of $1.15 to $1.20 billion, down sequentially, due to delays in deal closings. The Zacks Consensus Estimate is pegged at $1.26 billion. Non-GAAP gross margin is expected around 64.0% (+/- 0.5%).
The company expects non-GAAP operating expenses to be $505.0 million (+/- $5.0 million), down from the previous quarter, whereas non-GAAP operating margin will likely be 21.0%. Non-GAAP earnings per share are expected to range between 35 cents and 40 cents, well above the Zacks Consensus Estimate of 34 cents.
Our Take
Juniper delivered modest second quarter results. The company provided tepid third-quarter guidance.
We remain encouraged by the company’s product launches, cost reduction initiatives and improving execution are the positives. Increased spending by service providers such as AT&T (T) and Verizon (VZ) should also support the company’s near-term fundamentals. 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 also remain a concern. Delays in large projects also remain an overhang on the stock.
Currently, Juniper carries a Zacks Rank #3 (Hold).
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