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Ericsson (ERIC) Q1 Earnings Beat Estimates, Top Line Falls Y/Y
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Ericsson (ERIC - Free Report) reported mixed first-quarter 2024 results, wherein the bottom line surpassed the Zacks Consensus Estimate, but the top line missed the same. The company reported a revenue decline year over year, owing to sluggish demand in the Networks Segment. Sharp sales drop in the South East Asia and Oceania region and normalization of 5G investments in India affected the top line. Solid expansion in gross margin backed by strategic cost-saving measures, commercial discipline and a competitive portfolio is a tailwind.
Net Income
Ericsson recorded a net income of SEK 2.6 billion ($250 million) or SEK 0.77 (7 cents) per share in the first quarter of 2024 compared with SEK 1.6 billion or SEK 0.45 per share in the prior-year quarter. Despite net sales decline, lower operating expenses supported the bottom line. Adjusted earnings came in at 7 cents per share, beating the Zacks Consensus Estimate of 5 cents.
Ericsson generated SEK 53.3 billion ($5.13 billion) in revenues, down 15% year over year. Net sales, adjusted for comparable units and currency, decreased 14% year over year. Demand softness in the Networks segment impeded the top line. The top line missed the Zacks Consensus Estimate of $5.33 billion.
Segment Results
Networks segment generated SEK 33.7 billion ($3.24 billion), down 21% from the year-ago quarter’s tally of SEK 42.5 billion. The top line matched our revenue estimate of SEK 33.7 billion. The segment’s gross margin improved to 44% from 39.7% in the year-ago quarter. It witnessed a 42% sales decline in South East Asia, Oceania and India.
Normalization of capex investment in India and a decrease in sales in the Philippines and Malaysia affected the top line in this segment. Sales in North America also declined 23% year over year due to lower capex from operators. Growing 5G investments in the Middle East and Africa partially reversed this trend.
Cloud Software and Services contributed SEK 13 billion ($1.25 billion) in revenues, down 3% year over year, owing to a decline in Managed Network Services. The top line surpassed our revenue estimate of SEK 12.9 billion. Gross margin improved to 37.1% from 33.4% in the prior-year quarter. Increased IPR licensing revenues, commercial discipline and improvement in delivery performance propelled the gross margin.
Enterprise sales remained flat at SEK 6 billion ($577 million), matching the year-ago quarter’s tally. Net sales missed our revenue estimate of SEK 8.5 billion. The company witnessed growth in both Cradlepoint and Private Cellular with higher sales of Enterprise Wireless Solutions. However, declining sales in the Global Communication Platform reversed the positive trend. Gross margin, excluding restructuring charges, was 48.1%, up from 47.6% in the year-ago quarter.
Other revenues declined to SEK 0.6 billion ($57 million) compared with the prior-year quarter’s figure of SEK 0.7 billion.
Region-wise, South-East Asia, Oceania and India registered revenues of SEK 8.6 billion ($827 million), down from SEK 13.9 billion in the prior-year quarter. Revenues from North East Asia decreased 22% year over year to SEK 3.4 billion ($327 million). Net sales from North America decreased 18% year over year to SEK 13.9 billion ($1.34 billion) owing to a lower level of 5G capex investments.
Europe and Latin American markets witnessed a 7% year-over-year decline to SEK 13.2 billion ($1.27 billion). The company’s revenues in the Middle East and Africa rose 11% to SEK 4.6 billion ($442 million), driven by positive 5G momentum. Revenues from other regions rose to SEK 9.5 billion ($914 million) from SEK 8.9 billion in the prior-year quarter.
Other Details
Gross income, excluding restructuring charges, declined to SEK 22.8 billion ($2.19 billion) from the year-ago figure of SEK 24.9 billion due to a reduction in net sales. Gross margin, excluding restructuring charges, was 42.7%, up from 39.8% in the year-earlier quarter. Enhanced commercial discipline, higher IPR licensing revenues, cost optimization and a competitive product portfolio elevated the gross margin.
Cash Flow and Liquidity
Ericsson generated SEK 5.1 billion ($491 million) cash from operating activities during the quarter. As of Mar 31, 2024, the company had net cash of SEK 10.8 billion ($1.01 billion) with SEK 20.8 billion liabilities for post-employment benefits.
Outlook
Management foresees that demand in the RAN (Radio Access Network) market will likely remain muted throughout 2024 as investments in India normalize and customers remain cautious with their spending decisions. Normalization of inventory levels in North America and several contract wins will likely stabilize the company’s top line in the second half of the current fiscal. It will continue to focus on developing advanced, differentiated products and services, proactively optimize business operations through strategic cost savings initiatives and drive greater value to shareholders.
For the second quarter of 2024, revenues from the Networks, Cloud Software and Services segment are expected to follow the average seasonality between Q1 and Q2 in the last three years. Gross margin in the Networks segment is likely to be in the range of 42-44%. Restructuring charges are projected to be around SEK 3-4 billion in 2024.
Zacks Rank & Stocks to Consider
Ericsson currently carries a Zacks Rank #3 (Hold).
Pinterest (PINS - Free Report) , sporting a Zacks Rank #1 (Strong Buy) at present, delivered a trailing four-quarter average earnings surprise of 37.42%. In the last reported quarter, it delivered an earnings surprise of 3.92%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pinterest is increasingly establishing a unique value proposition to advertisers that could provide a competitive advantage in the long haul. Through various innovations, it continues to dramatically improve the advertising platform, which appears to be one of the best ad platforms for consumer discretionary brands looking for ways to reach customers and stretch smaller ad budgets.
NVIDIA Corporation (NVDA - Free Report) , currently sporting a Zacks Rank #1, delivered a trailing four-quarter average earnings surprise of 20.18%. In the last reported quarter, it delivered an earnings surprise of 13.41%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy) at present, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 13.3%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Note: SEK 1 = $0.0961769 (period average from Jan 1, 2024 to Mar 31, 2024) SEK 1 = $0.0937625 (as of Mar 31, 2024)
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Ericsson (ERIC) Q1 Earnings Beat Estimates, Top Line Falls Y/Y
Ericsson (ERIC - Free Report) reported mixed first-quarter 2024 results, wherein the bottom line surpassed the Zacks Consensus Estimate, but the top line missed the same. The company reported a revenue decline year over year, owing to sluggish demand in the Networks Segment. Sharp sales drop in the South East Asia and Oceania region and normalization of 5G investments in India affected the top line. Solid expansion in gross margin backed by strategic cost-saving measures, commercial discipline and a competitive portfolio is a tailwind.
Net Income
Ericsson recorded a net income of SEK 2.6 billion ($250 million) or SEK 0.77 (7 cents) per share in the first quarter of 2024 compared with SEK 1.6 billion or SEK 0.45 per share in the prior-year quarter. Despite net sales decline, lower operating expenses supported the bottom line. Adjusted earnings came in at 7 cents per share, beating the Zacks Consensus Estimate of 5 cents.
Ericsson Price, Consensus and EPS Surprise
Ericsson price-consensus-eps-surprise-chart | Ericsson Quote
Revenues
Ericsson generated SEK 53.3 billion ($5.13 billion) in revenues, down 15% year over year. Net sales, adjusted for comparable units and currency, decreased 14% year over year. Demand softness in the Networks segment impeded the top line. The top line missed the Zacks Consensus Estimate of $5.33 billion.
Segment Results
Networks segment generated SEK 33.7 billion ($3.24 billion), down 21% from the year-ago quarter’s tally of SEK 42.5 billion. The top line matched our revenue estimate of SEK 33.7 billion. The segment’s gross margin improved to 44% from 39.7% in the year-ago quarter. It witnessed a 42% sales decline in South East Asia, Oceania and India.
Normalization of capex investment in India and a decrease in sales in the Philippines and Malaysia affected the top line in this segment. Sales in North America also declined 23% year over year due to lower capex from operators. Growing 5G investments in the Middle East and Africa partially reversed this trend.
Cloud Software and Services contributed SEK 13 billion ($1.25 billion) in revenues, down 3% year over year, owing to a decline in Managed Network Services. The top line surpassed our revenue estimate of SEK 12.9 billion. Gross margin improved to 37.1% from 33.4% in the prior-year quarter. Increased IPR licensing revenues, commercial discipline and improvement in delivery performance propelled the gross margin.
Enterprise sales remained flat at SEK 6 billion ($577 million), matching the year-ago quarter’s tally. Net sales missed our revenue estimate of SEK 8.5 billion. The company witnessed growth in both Cradlepoint and Private Cellular with higher sales of Enterprise Wireless Solutions. However, declining sales in the Global Communication Platform reversed the positive trend. Gross margin, excluding restructuring charges, was 48.1%, up from 47.6% in the year-ago quarter.
Other revenues declined to SEK 0.6 billion ($57 million) compared with the prior-year quarter’s figure of SEK 0.7 billion.
Region-wise, South-East Asia, Oceania and India registered revenues of SEK 8.6 billion ($827 million), down from SEK 13.9 billion in the prior-year quarter. Revenues from North East Asia decreased 22% year over year to SEK 3.4 billion ($327 million). Net sales from North America decreased 18% year over year to SEK 13.9 billion ($1.34 billion) owing to a lower level of 5G capex investments.
Europe and Latin American markets witnessed a 7% year-over-year decline to SEK 13.2 billion ($1.27 billion). The company’s revenues in the Middle East and Africa rose 11% to SEK 4.6 billion ($442 million), driven by positive 5G momentum. Revenues from other regions rose to SEK 9.5 billion ($914 million) from SEK 8.9 billion in the prior-year quarter.
Other Details
Gross income, excluding restructuring charges, declined to SEK 22.8 billion ($2.19 billion) from the year-ago figure of SEK 24.9 billion due to a reduction in net sales. Gross margin, excluding restructuring charges, was 42.7%, up from 39.8% in the year-earlier quarter. Enhanced commercial discipline, higher IPR licensing revenues, cost optimization and a competitive product portfolio elevated the gross margin.
Cash Flow and Liquidity
Ericsson generated SEK 5.1 billion ($491 million) cash from operating activities during the quarter. As of Mar 31, 2024, the company had net cash of SEK 10.8 billion ($1.01 billion) with SEK 20.8 billion liabilities for post-employment benefits.
Outlook
Management foresees that demand in the RAN (Radio Access Network) market will likely remain muted throughout 2024 as investments in India normalize and customers remain cautious with their spending decisions. Normalization of inventory levels in North America and several contract wins will likely stabilize the company’s top line in the second half of the current fiscal. It will continue to focus on developing advanced, differentiated products and services, proactively optimize business operations through strategic cost savings initiatives and drive greater value to shareholders.
For the second quarter of 2024, revenues from the Networks, Cloud Software and Services segment are expected to follow the average seasonality between Q1 and Q2 in the last three years. Gross margin in the Networks segment is likely to be in the range of 42-44%. Restructuring charges are projected to be around SEK 3-4 billion in 2024.
Zacks Rank & Stocks to Consider
Ericsson currently carries a Zacks Rank #3 (Hold).
Pinterest (PINS - Free Report) , sporting a Zacks Rank #1 (Strong Buy) at present, delivered a trailing four-quarter average earnings surprise of 37.42%. In the last reported quarter, it delivered an earnings surprise of 3.92%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pinterest is increasingly establishing a unique value proposition to advertisers that could provide a competitive advantage in the long haul. Through various innovations, it continues to dramatically improve the advertising platform, which appears to be one of the best ad platforms for consumer discretionary brands looking for ways to reach customers and stretch smaller ad budgets.
NVIDIA Corporation (NVDA - Free Report) , currently sporting a Zacks Rank #1, delivered a trailing four-quarter average earnings surprise of 20.18%. In the last reported quarter, it delivered an earnings surprise of 13.41%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to AI-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy) at present, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 13.3%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Note: SEK 1 = $0.0961769 (period average from Jan 1, 2024 to Mar 31, 2024)
SEK 1 = $0.0937625 (as of Mar 31, 2024)