Earnings Preview: Nokia Corp.

Nokia Corporation ( NOK - Analyst Report ) is slated to release its second quarter 2012 results on Thursday, July 19, before the opening bell. The current Zacks Consensus Estimate projects a loss of 11 cents per share for the second quarter, representing a decline of 218.89% from the year-ago quarter.

With respect to earnings surprises over the trailing four quarters, Nokia has outperformed the Zacks Consensus Estimate in three out of the four quarters. The average earnings surprise was a positive 206.55%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude in three out of the last four quarters.

First Quarter Recap

On April 19, 2012, Nokia reported its first quarter 2012 financial results. Quarterly net loss was approximately $1,200 million or a loss of 33 cents per share compared with a net income of $300 million or 12 cents per share in the prior-year quarter. However, adjusted EPS (excluding special items) of a loss of 11 cents per share in the reported quarter was significantly higher than the Zacks Consensus Estimate of a loss of 6 cents.

Quarterly net revenue was approximately $9,629 million, down 29% year over year, and well below the Zacks Consensus Estimate of $10,053 million. Operating margin in the first quarter was a negative 18.2% compared with 4.2% in the year-ago quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the 20 analysts covering the stock, two increased the estimate for the second quarter of 2012, while 3 analysts decreased estimates during the same period. Similarly, for the third quarter of 2012, out of the 19 analysts covering the stock, 3 analysts slashed the estimate, while none revised it upwards.

For fiscal 2012, in the last 30 days, out of the 24 analysts covering the stock, 7 analysts decreased the estimate while 2 analysts increased it. For fiscal 2013, out of the 24 analysts covering the stock, 7 analysts reduced the estimate, while none moved the estimate upward.

The analysts remained bearish on Nokia Corp. as they believe that fiscal 2013 will be another tough year for the company as it battles market share losses coupled with the looming fear of Lumia’s failure. They believe that the company’s decision to slash the prices of its flagship Lumia 900 might impact its bottom line.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate further declined to a loss of 11 cents from the previous estimate of a loss of 10 cents for the second quarter of 2012, and was in line with the earlier estimate of a loss of 7 cents for the third quarter of 2012. For fiscal 2012, during the last 30 days, the current Zacks Consensus Estimate further declined to a loss of 30 cents from the previous estimate of a loss of 27 cents. Similarly, for fiscal year 2013, the current Zacks Consensus Estimate was 3 cents below the previous estimate of 5 cents.

Earnings Surprises

The current Zacks Consensus Estimate for the second quarter remains flat at 0.00%, while the third quarter reflects a downside of 14.29% (essentially a proxy for future earnings surprises). Likewise, for fiscal 2012, the current Zacks Consensus Estimate remained flat at 0.00%, while fiscal 2013 reflects a downside of 50.00%.

Our Take

Currently, Nokia is losing market share to Apple Inc.’s ( AAPL - Analyst Report ) iPhone and an array of smartphones that run on Google Inc.’s ( GOOG - Analyst Report ) Android operating system. In spite of teaming up with Microsoft Corporation ( MSFT - Analyst Report ) to develop Windows based smartphones, the company’s performance was not up to the mark. However, Nokia is still a strong brand and possesses a strong portfolio of 30,000 patents and around 10,000 patented innovations in its arsenal. Additionally, management has opted for another 10,000 headcount reduction and plans to close down three facilities which we believe will help the company improve its operations going forward.

We maintain our long-term Neutral recommendation on Nokia Corp. Currently, NOK has a Zacks #3 Rank, implying a short-term Hold rating on the stock.