Juniper Reports Mixed 1Q

|
 |  About: Juniper Networks (JNPR)
by: Zacks Investment Research

Juniper Networks Inc. (NYSE:JNPR) has posted an adjusted EPS of 23 cents in the first quarter of 2011, missing the Zacks Consensus Estimate of 26 cents.

Revenues

Juniper Networks’ revenues rose 21.0% year over year to $1.10 billion in the first quarter, slightly above the Zacks Consensus Estimate of $1.09 billion. The company generated 79.6% of its consolidated quarterly revenue from product sales, while the remaining 20.3% came from service revenues. The company witnessed growth in both product and services revenues, which were up 21.6% and 17.1%, respectively, from the year-ago quarter.

Revenue by Segment

Infrastructure Products revenue increased 25.9%, Infrastructure Services revenue rose 25.9%, Service Layer Technologies Products revenue spiked 2.3% while Service Layer Technologies Services revenue jumped 12.2% on a year-over-year basis in the reported quarter.

Revenue by Region

The Americas contributed 52.7% to the quarterly revenues, while 27.2% came from the EMEA region comprising Europe, Middle East and Africa. The Asia-Pacific region accounted for the remaining 19.9% of the revenues in the reported quarter.

Operating Results

On a GAAP basis, Juniper Networks’ gross margin increased to 69.7% in the first quarter from 69.2% in the year-ago quarter. Excluding amortization of intangibles and stock-based compensation, non-GAAP gross margin in the quarter was 70.6%, up from 69.3% reported in the year-ago quarter.

On a non-GAAP basis, product gross margin was 70.6%, up from 69.3% in the prior-year quarter. The improvement was driven by better product mix. Service gross margin was 57.5% compared with 61.0% reported in the year-ago quarter.

Operating margin on a GAAP basis was 16.1%, down from 17.6% reported in the year-ago quarter, while the non-GAAP operating margin was 22.3% versus 23.2% reported in the year-earlier quarter. Non-GAAP operating expenses increased 23.6% on a year-over-year basis. However, operating expense increased at a faster pace compared to revenue growth (23%), which resulted in the decline in operating margin.

The company increased its investment in research and development and enhanced the quality of its product portfolio. Juniper also increased its sales, general and administrative expenses to promote these new products.

Net income on a GAAP basis was $129.7 million, compared with $163.1 million reported in the year-ago 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 $128.4 million, up from $105.8 million reported in the year-ago quarter.

Net income per share on a non-GAAP basis was 23 cents, up from 19 cents reported in the comparable quarter last year.

Balance Sheet & Cash Flow

Juniper Networks exited the first quarter with $3.10 billion in cash and short-term investments, compared with $2.10 billion in the previous quarter. The company generated $240.0 million in net cash from operations, down from $370.0 million in the year-ago quarter. Capex totaled $54.0 million, up $6.0 million from the prior quarter. During the quarter, Juniper repurchased 4.8 million shares worth $200 million, at an average price of $42.14.

Guidance

Management expects revenue for the second quarter to be in the range of $1.13 billion to $1.18 billion, representing a year-over-year increase of approximately 16% to 21%. The company expects the non-GAAP gross margin to remain in its targeted range of 66% to 68% in the second quarter, and non-GAAP operating margin for the second quarter to be 22.5%, plus or minus 0.5%. Juniper expects the non-GAAP net income to range between $0.31 and $0.34.

Our Take

The 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. (NYSE:T) and Verizon Inc. (NYSE: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. (NASDAQ:CSCO) and Hewlett-Packard Company (NYSE:HPQ), coupled with Juniper’s European exposure, will likely weigh on the stock.

Juniper has a Zacks #3 Rank, implying a short-term Hold rating on the stock.