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Juniper Networks Inc. (JNPR - Analyst Report) reported adjusted earnings per share (including stock-based compensation but excluding amortization, restructuring, acquisition-related and other expenses) on a proportionate tax basis of 32 cents in the fourth quarter of 2013, ahead of the Zacks Consensus Estimate of 27 cents. On a year-over-year basis, earnings improved 76.4% primarily due to a higher revenue base.

Revenues

Juniper’s fourth-quarter 2013 revenues increased 11.6% from the year-ago quarter to $1.27 billion, primarily attributable to strength in both service provider and enterprise revenues. Reported revenues also surpassed the Zacks Consensus Estimate of $1.22 billion.

Juniper generated 76.0% of its consolidated quarterly revenues from product sales, which increased 14.9% from the year-ago quarter. The remaining 24.0% came from service revenues, which grew 2.2% on a year-over-year basis.

Geographically, the Americas’ revenues were up 12.8% on a year-over-year basis while EMEA and Asia Pacific revenues were up 6.0% and 17.7%, respectively.

On an end-market basis, Juniper’s revenues from service providers increased 11.8% from the year-ago quarter primarily due to new design wins across all three theaters and higher spending from Juniper’s Tier 1 service provider customers as well as cable and Web 2.0 customers. Enterprise revenues were also up 11.3% year over year due to broad-based strength across the customer verticals.

Operating Results

Juniper Networks’ non-GAAP gross margin was 63.1% in the fourth quarter versus 64.2% in the year-ago period, primarily due to unfavorable product mix. Adjusted operating margin improved from 13.1% to 16.8% on a year-over-year basis due to lower operating expenses as a percentage of revenues. Operating expenses decreased from 52.8% to 47.8% as a percentage of revenues.

The company reported adjusted net income (including stock-based compensation but excluding amortization, restructuring, acquisition-related and other expenses) of $162.7 million or 32 cents, which increased from $93.6 million or 18 cents reported in the year-ago quarter.

Balance Sheet

Juniper exited the fourth quarter with total cash, cash equivalents and investments of $2.84 billion compared with $2.85 billion in the previous quarter. Long-term debt was $999.3 million, roughly flat sequentially.

Guidance

Juniper expects first-quarter revenues in the range of $1.12 billion–$1.16 billion. The Zacks Consensus Estimate of $1.14 billion falls within this range Non-GAAP gross margin is expected in the range of 64.0%, which may move up or down in the range of 0.5%.

The company expects non-GAAP operating expenses to be flat to slightly down from the previous quarter, whereas non-GAAP operating margin will likely be 17.0%. Non-GAAP earnings per share are expected to range between 27 cents and 30 cents, well above the Zacks Consensus Estimate of 19 cents.

Our Take

Juniper delivered better-than-expected fourth-quarter 2013 results. The company’s top as well as bottom line increased year over year and beat the Zacks Consensus Estimate. The company provided modest first-quarter 2014 guidance.

While the company’s new products, cost reduction initiatives and improving execution are positives, we remain cautious about increasing competition from F5 Networks Inc. (FFIV - Snapshot Report), Cisco Systems Inc. (CSCO - Analyst Report) and AT&T Network (T - Analyst Report). Increased spending by service providers should also support the company’s near-term fundamentals. Juniper’s expansion into the software defined network segment is expected to strengthen the company’s position in the networking space.

Currently, Juniper carries a Zacks Rank #3 (Hold).
 

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