Juniper Networks ( JNPR - Analyst Report ) posted adjusted earnings per share (EPS) of 10 cents in the second quarter of 2012, above the Zacks Consensus Estimate of 8 cents.

Revenues

Juniper Networks’ revenues declined 4.17% year over year, but increased by 4.0% sequentially to $1.07 billion in the reported quarter. The year-over-year decline was mainly attributed to the Service Provider weakness in EMEA and in APAC region. Whereas the sequential increase was due to good Enterprise and Service Provider growth in the Americas, which offset weakness in other regions.

The company generated 74.9% of its consolidated quarterly revenue from product sales, while the remaining 25.1% came from service revenues. Both product revenues and service revenues declined 9.7% and 17.4%, respectively, on a year-over-year basis.

Revenue by Region

As per geographic segments, the Americas contributed around 54.7%, EMEA 27.9% and APAC 17.4% to the total revenue. Revenue from the Americas was up 11.0% sequentially and 1.0% on a year-over-year basis. The sequential increase was attributed to a broad-based Enterprise strength, offset somewhat by weaker federal and financial services.

EMEA revenue was down 9.1% year over year and 3% sequentially. This decline was on the back of ongoing weakness in Service Providers. The company has witnessed a cautious approach among customers in the EMEA region in response to the uncertain macro environment.

APAC revenue decreased 12.0% year over year. In the Asia-Pacific region, the company continues to capture design wins with Service Providers in the region. Lower Service Provider demand in the region resulted in the year-over-year decline in revenues.

Operating Results

On a GAAP basis, Juniper Networks’ gross margin was 63.6% in the second quarter versus 67.2% in the year-ago quarter. Although the company witnessed a favorable routing mix, offset to a considerable extent by a higher switching mix and some cost increases in security.

Operating margin on a GAAP basis was 8.1% versus 15.3% in the year-ago quarter. Operating expenses increased substantially to $581.2 million on a sequential basis, driven by higher Research & Development expense and Sales & Marketing expense.

Net income on a GAAP basis was $57.7 million compared with $115.6 million in the prior-year quarter. Excluding special items such as restructuring charges, amortization, acquisition related charges, non-recurring income tax adjustments, non-GAAP adjusted net income in the quarter was $52.9 million or 10 cents per share.

Balance Sheet & Cash Flow

Total cash, cash equivalents and investments in the reported quarter were $3,044.3 million compared with $3,430.5 million in the previous quarter. Juniper generated cash from operations of $160.9 million in the quarter, down from $102.3 million in the prior year.

Days Sales Outstanding (DSO) was 34 days in the quarter, down from 39 days last quarter and in the second quarter of last year.

Third Quarter Guidance

For third quarter 2012, the company expects revenue in the range of $1,040 million to $1,075 million. Non-GAAP gross margin is expected to remain roughly flat. Moreover, non-GAAP operating margin is projected in the range of 13% to 14%. This apart, non-GAAP net income per share is forecasted between 15 cents and 18 cents on a diluted basis.

Conclusion

Juniper delivered modest second quarter 2012 numbers, but witnessed a decline in revenue on a year-over-year basis. However, EPS exceeded the Zacks Consensus Estimate. Although the company delivered decent EPS, the operating performance of the company was mediocre as costs increased substantially over the period.

On a positive note, Juniper’s revenue in the Americas increased sequentially and the company provided impressive second quarter guidance. Despite new product launches, strategic alliances, and new business deals, the company is expected to be affected by the much-pressured core routing market and stiff competition.

The company has a Zacks #3 Rank, implying a Hold rating.