Juniper (JNPR) Beats On Q3 Earnings, Revenues Up Y/Y

Juniper Networks Inc. (NYSE:JNPR) reported third-quarter 2016 adjusted earnings of 47 cents per share, which beat the Zacks Consensus Estimate by 6 cents. However, earnings declined a penny from 48 cents reported in the year-ago quarter.

Shares surged 7.3% in after-hour trading.

Quarter in Detail

Juniper’s revenues of $1.29 billion surpassed the Zacks Consensus Estimate and its own expectation of $1.25 billion (+/- $30 million). Revenues increased almost 3% on a year-over-year basis.

Product revenues (72.2% of total revenues) were almost flat on a year-over-year basis to $928.2 million. Book-to-bill ratio was greater than 1 and product deferred revenues jumped 24% year-over-year.

On the other hand, services revenues (27.8% of total revenues) surged 10.5% to $357.1 million.

The networking solutions provider witnessed year-over-year revenue growth in the Switching product category, which increased 10.5% to $222.5 million. Routing category revenues also climbed 2.6% year over year to $620.2 million. However, Security revenues plunged 28.5% to $85.5 million.

Juniper noted strong demand for its QFX family of products, revenues from which soared 50% on a year-over-year basis.

Geographically, the company registered year-over-year increase in revenues from Asia Pacific (up roughly 12%) and America (up 4.5%), while revenues from EMEA slumped almost 5%.

Adjusted gross margin contracted 140 basis points (bps) year over year to 62.9%, primarily because of unfavorable product and geography mix coupled with pricing pressure. Gross margin was close to the management’s guidance of 63% (+/- 0.5%).

Research & Development (R&D) and Sales & Marketing (S&M) expenses increased 4% and 1% year over year, respectively to $224.5 million in the reported quarter. However, General & Administrative (G&A) declined 7% on a year-over-year basis to $44.8 million.

As a result, operating expenses increased 2% from the year-ago quarter to $493.8 million lower than the guided figure of $500 million (+/- $5 million). Operating margin contracted 110 bps to 24.4%, better than the management’s guidance of 23%.

Cash Flow/Share Buyback

Juniper generated cash flow from operations of $245 million, down $109 million sequentially primarily due to payments for incentive compensation. During the quarter, the company repurchased $112 million of shares and paid $38 million in dividends.

Guidance

Juniper’s outlook for the fourth quarter is encouraging. The company anticipates revenues of approximately $1.35 billion (+/- $30 million).

Non-GAAP gross margin is projected to be around 63% (+/- 0.5%). The company expects non-GAAP operating expenses of $510 million (+/- $5 million), and non-GAAP operating margin of almost 25%.

Non-GAAP earnings are expected to range within 59 cents to 65 cents per share.

Our Take

Juniper’s frequent product launches, cost reduction initiatives and improving execution are encouraging. Additionally, the company’s expansion into the software defined network segment should strengthen its position in the networking space. However, an uncertain global macro environment and potentially weak investment patterns among customers are the major headwinds.

Zacks Rank & Key Picks

Currently, Juniper has a Zacks Rank #3 (Hold). Better ranked stocks in the broader technology sector are InterDigital (NASDAQ:IDCC) , Acacia Communications (NASDAQ:ACIA) and Veeco Instruments (NASDAQ:VECO) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

InterDigital, Veeco and Acacia are scheduled to report earnings on Oct 27, Nov 1 and Nov 10, respectively.

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