What To Expect From Juniper’s Second Quarter Earnings

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JNPR: Juniper Networks logo
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Juniper Networks

Juniper Networks (NYSE:JNPR) is scheduled to announce its Q2 2017 results on Tuesday, July 25. [1] Over the last few quarters, the company has reported sustained growth in the services segment, with double digit growth in services revenues. Moreover, the services segment gross profit margin has improved consistently in the same period. On the other hand, product revenues have shown limited growth. Among the various product categories, Network Switches has been the only stream where Juniper has reported strong positive growth in revenues.

jnpr_q1_17_ep3

This trend was evident in the most recent quarter as well, with the networking giant reporting 11% revenue growth in the most recent quarter to just over $1.2 billion, as shown below. While services revenues grew 13% to $1.5 billion for the full year, combined product revenues remained roughly flat over the previous year at just over $3.5 billion.

We have a $29 price estimate for Juniper, which is in line with the current market price.

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See Full Analysis For Juniper Here

Guidance For Q2 2017

Juniper’s management expects the trends from 2016 and Q1’17 to continue through the June quarter as well. Net revenues could grow at around 5% to $1.3 billion, with switching products and the services divisions mainly driving growth. Gross margins could compress by around 50 basis points to around 62.5%, as shown below. Management targets a long-term gross margin of around 64% in the coming quarters, which can be achieved by higher sales volumes and a high attach rate of customers in the services segment.

In an attempt to improve profitability and earnings per share, management mentioned that the company aims to improve its cost structure in the coming quarters. For the June quarter, operating expenses are expected to stay flat over the comparable prior year period at around $500 million.

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Performance Across Product Lines

The switching segment has been a key growth area for Juniper over the last few years, with revenues growing at a CAGR of 12% from 2011 through 2016. In the last few quarters, the switching segment has further improved its performance, with the company’s new QFX and EX product lines driving significant growth. Switching revenues were up 19% and 38% on a y-o-y basis in the December quarter and March quarter to $251 million and $242 million, respectively. In this period, the y-o-y increase in revenues generated by sales of the QFX switch product line stood at 50% and 90%, respectively.

Comparatively, Juniper’s core routing business has struggled over the last few years, with lumpy demand over the years and minimal revenue growth. Similarly, Juniper has suffered in the network security domain, with a double digit revenue decline over the last few years. In 2016, network security revenues were down 27% to $318 million. While this slowed down to a 10% decline in Q1’17 to $66 million, the trend is still a concern for the company. In the same period, rival networking company Cisco (NASDAQ:CSCO) reported steady mid-single digit growth in network security revenues.

jnpr_q1_17_ep1

Juniper’s services segment has also contributed meaningfully to the top line growth for the company. Juniper has reported 14% annual growth in services revenues to $392 million in the March quarter. In addition to revenue growth, the services segment has become more profitable for the company. The services gross margin was up by 60 basis points to 60.2%. However, despite expanding margins of the services division, the company-wide gross margin fell due to weakness in the product segment. While the services segment should continue to help drive growth, the slowdown in the product division could continue to weigh on profits.

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Notes:
  1. Juniper Networks Announces Date of Second Quarter 2017 Preliminary Financial Results Conference Call and Webcast, Juniper Press Release, July 2017 []