Juniper (JNPR) Tops Q1 Earnings Estimates, Lowers '19 View

Juniper Networks, Inc. JNPR kept its earnings streak alive in the first quarter of 2019, with earnings beating estimates by 23.81%. Further, sales beat estimates by 1.4%. Despite the better-than-expected results, lowered earnings guidance on account of high tax rate and the Mist Systems buyout created negative sentiment for the sock.

The company’s share price declined 2.1% yesterday, closing the trading session at $28.11.

On a GAAP basis, net income decreased to $31.1 million or 9 cents per share from net income of $34.4 million or 10 cents per share in the year-earlier quarter.

Non-GAAP net income for the reported quarter was $92.7 million or 26 cents per share compared with $99.5 million or 28 cents per share a year ago. This year-over-year decrease was due to weak sales performance and lower operating margin. The company’s bottom line surpassed the Zacks Consensus Estimate of 21 cents.

Weak Cloud and Service Sales Lower Revenues

Quarterly total net revenues were $1,001.7 million, down 7.5% from $1,082.6 million in the prior-year quarter. This was primarily due to weakness in cloud and service provider businesses, which more than offset momentum in the enterprise business.

However, the top line surpassed the Zacks Consensus Estimate of $987.6 million.

Product revenues (comprising Routing, Switching and Security, and accounting for 61.8% of total net revenues) for the quarter decreased 13% year over year to $618.7 million due to lower routing, security and switching businesses. Service revenues (accounting for 38.2% of total net revenues) were up 3% to $383 million.

By vertical, net revenues from the Cloud business declined 17.6% year over year to $223.1 million. Net revenues from the Service Provider business were down 9.3% to $435.6 million. Net revenues from the Enterprise business increased 3.4% year over year to $343 million.

Geographically, net revenues decreased 7.1% year over year to $286.2 million from $308 million in EMEA. Quarterly revenues in the Americas decreased 7.5% year over year to $543.6 million. For the Asia Pacific, net revenues decreased 8.1% to $171.9 million.

Margin Profile Mixed

In the quarter under review, Juniper’s costs of revenues decreased 9.7% year over year to $419.4 million. It represented 41.9% of net revenues compared with 42.9% in the year-ago quarter. Gross profit in the quarter decreased 5.8% year over year to $582.3 million while gross margin increased 100 basis points (bps) to 58.1%.

Research and development expenses were $227.6 million, down 15.5% year over year. It represented 22.7% of net sales versus 24.9% in the year-ago quarter. Selling and marketing expenses of $228.5 million reflect a year-over-year decrease of 4.6%. As a percentage of net sales, it represented 22.8% of net sales versus 22.1% in the year-ago quarter. General and administrative expenses were $68.2 million, up 21.8% year over year. It represented 6.8% of net sales versus 5.2% in the year-ago quarter.

Non-GAAP operating income in the quarter under review decreased 15.7% year over year to $112.5 million. Operating margin declined 110 bps to 11.2% in the reported quarter.

Cash Flow and Liquidity

In the quarter under review, Juniper generated net cash of $159.4 million from operating activities, decreasing 41.2% from the year-ago period’s level. Capital used for purchasing property and equipment totaled $27.9 million versus $42.2 million in the year-ago quarter.

During the reported quarter, the company used $2.9 million for repurchasing and retiring common shares, and $66.2 million for paying dividends.

Exiting the first quarter, the company had cash and cash equivalents of $2,155.6 million, roughly 13.4% below $2,489 million recorded at the end of the last reported quarter. Long-term debts were $1,789.6 million, roughly flat sequentially.

Concurrent with the earnings release, the company declared that the board of directors approved payment of a quarterly cash dividend of 19 cents per share to shareholders of record as of Jun 3. The dividend payment will be made on Jun 24.

Outlook

For 2019, Juniper anticipates non-GAAP gross margin to be roughly at the mid-point of long-term margin forecasts. Also, non-GAAP operating expenses are predicted to be flat to up year over year due to impacts of the Mist Systems buyout.

Non-GAAP earnings per share are predicted to be $1.70-$1.80, down from the prior forecast of $1.75-$1.85 due to high tax rate and the Mist Systems buyout.

For the second quarter, the company anticipates revenues of roughly $1,100 million (+/- $30 million).

Non-GAAP gross margin is projected to be around 59.5% (+/- 1%) and non-GAAP operating expenses are likely to be $485 million (+/- $5 million). However, non-GAAP operating margin is now predicted to be 15.5% at the mid-point of the revenue guidance.

Non-GAAP net income per share is anticipated to be approximately 39 cents (+/- 3 cents), assuming a share count of nearly 350 million.

Juniper Networks, Inc. Price, Consensus and EPS Surprise