Juniper Gains as Sales Forecast Tops Analysts’ EstimatesPeter Burrows
Juniper Networks Inc. rose the most in three months after forecasting first-quarter sales higher than analysts’ estimates, a sign the network-equipment maker is weathering management changes and increased competition.
Sales will be $1.02 billion to $1.06 billion for the quarter, the Sunnyvale, California-based company said Tuesday in a statement. On average, analysts projected revenue of $1.02 billion, according to data compiled by Bloomberg. Earnings excluding some costs will be 28 cents to 32 cents a share, compared with an average analyst estimate of 30 cents. Fourth-quarter profit also beat estimates.
“It looks good, certainly on the surface,” Erik Suppiger, an analyst at JMP Securities LLC, said in a telephone interview. “They have set some very low expectations.”
Juniper has been working to find new growth, while also dealing with pressure to increase shareholder returns from activist investors led by Elliot Management Corp. A month after naming technology executive Shaygan Kheradpir chief executive officer in January 2014, the company announced increased stock buybacks and cost-cutting. In October, the company said it missed its third-quarter forecast due to worsening carrier spending. A month later, the board replaced Kheradpir, a former Barclays Plc technology executive, with Rami Rahim, citing concerns about Kheradpir’s leadership skills and his behavior in a contract negotiation with an unidentified Juniper customer.
“I’m pleased with the solid progress we made as we successfully streamlined our organization, reduced costs, increased capital returns to our shareholders and sharpened our focus on the fastest growing segments of the market,” Rahim said in the statement.
The shares rose 3.8 percent to $22.65 at the close in New York, for the biggest one-day gain since Oct. 28. The stock has gained 5.3 percent since Kheradpir stepped down on Nov. 10.
One trouble spot was the company’s security technology business. Revenue for security was $96.5 million in the quarter, compared with $157 million in the same period a year earlier, and the company took an $850 million goodwill impairment charge due to the faltering performance of the unit. Suppiger said he would like to see Juniper sell its security business.
In the fourth quarter, earnings excluding certain costs were 41 cents a share, Juniper said in the statement. Revenue fell 14 percent to $1.1 billion. On average, analysts projected profit of 31 cents a share on sales of $1.06 billion.
The company had a fourth-quarter net loss of $769.6 million, or $1.81 a share, as it took the impairment charge.
Rahim has overseen development of some of Juniper’s most successful products since joining the company in 1997, said Doug Murray, a former Juniper executive who is now CEO of Big Switch Networks Inc.
New competitors such as Arista Networks Inc. and VMware Inc. have established themselves as leaders in the approach known as software-defined networking.
Stuart Jeffrey, an analyst at Nomura Securities International Inc., expects Juniper’s software-based products to lift sales in the second half of the year, he wrote in a recent note.
The company bought back $500 million of its shares during the fourth quarter and said it is committed to purchasing a total of $4.1 billion through 2016.
Elliott, which owned 9.1 percent of Juniper shares as of November, submitted a proposal in December to add three to five new directors to the company’s board, which would enable Juniper to avoid a proxy fight, people with knowledge of the matter said at the time.
Juniper gets 65 percent of its sales from phone companies, many of which have trimmed their capital budgets because they’ve completed the bulk of the move to 4G cellular networks. Verizon Communications Inc., the largest U.S. wireless carrier and Juniper’s largest single customer, according to a Bloomberg supply-chain analysis, broke with the trend on Jan. 22 by raising its capital spending forecast for 2015 to $17.5 billion to $18 billion this year, from $17 billion.
Still, phone companies may be able to significantly reduce network-equipment costs by moving to software-centric approaches. Mark Sue, an analyst at RBC Capital Markets, said total carrier spending will be little change in 2015 at $208 billion.
A successful transition could also help Juniper to gain share with large Internet companies and corporations that are building their own private clouds. Spending by these cloud providers will increase 14 percent to $41 billion, he wrote.
“Juniper could emerge from the current carrier cycle in a stronger competitive position longer term,” he wrote.
(An earlier version of this story incorrectly listed the timing of the CEO transition.)