Earning Scorecard: Nokia

Following the second quarter earnings announcement on July 19, 2012 more than half of the analysts covering Nokia Corp. (NOK - Analyst Report) have revised their estimates downward. The downward revisions were primarily based on stiff competition from other smartphone developers, reduction of handset prices and the lukewarm response for new Window-based Lumia phones.

Second Quarter Highlights

Quarterly net loss was approximately $1,964 million or a loss of 49 cents per share compared with a net loss of $523 million or 10 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) earnings per share of a loss of 10 cents were better than the Zacks Consensus Estimate of a loss of 11 cents.

Quarterly net revenue was approximately $9,689 million, down 19% year over year, breezing past the Zacks Consensus Estimate of $9,333 million. Quarterly gross margin was 23.6% compared with 30.8% in the year-ago quarter. Again, operating margin was a negative 11% in the reported quarter compared with a negative 5.3% in the year-ago quarter.

Agreements of Analysts

Of the 17 analysts covering the stock in the last 30 days, three analysts revised the EPS estimates upward, but 13 slashed them for the ensuing third and fourth quarters of 2012.

Likewise, for fiscal 2012, out of the 22 analysts covering the stock, six analysts raised EPS estimates while 14 reduced. Similarly, for fiscal 2013, out of the 22 analysts, four analysts increased the estimates but 15 analysts moved in the opposite direction.

Currently, the Zacks Consensus EPS Estimate for the third quarter of 2012 is pegged at a loss of 11 cents per share with a projected annual decline of 379.41%. Similarly, for the fourth quarter of 2012, the current EPS estimate of a loss of 4 cents per share reflects a year-over-year decline of 152.94%.

Magnitude of Estimate Revisions

In synergy with the downward estimate revision over the last 30 days, the current Zacks Consensus Estimate for the third quarter of 2012 was 3 cents above the previous estimate of a loss of 8 cents. Likewise, for the fourth quarter of 2012, the current Zacks Consensus Estimate was 2 cents above the earlier estimate of a loss of 2 cents over the last 30 days.

For fiscal 2012, the current Zacks Consensus Estimates was 6 cents above the previous estimate of a loss of 37 cents over the past 30 days. Likewise, for 2013, the current Zacks Consensus Estimate was 3 cents below the previous estimate of 3 cents.

Earning Surprises

With respect to earnings surprises, the company has produced an average earnings surprise of 121.32% in the trailing four quarters. The current Zacks Consensus Estimates for both the ongoing quarter and the fourth quarter of 2012 contain 0.00% upside potentials (essentially a proxy for future earning surprises), respectively, while for fiscal 2012 and 2013, Nokia reflects a growth potential of 0.00%, respectively.

Our Recommendation

Nokia remains in dismal state as the operating margin of its core Devices & Services segment plunged by a huge margin. Recently, the company was forced to reduce the price of its flagship 4G LTE-enabled Lumia 900 smartphone in the U.S. by a massive 50%, reflecting the company’s struggle for achieving a meaningful foothold in the smartphone segment. Importantly, AT&T Inc. (T - Analyst Report) was Nokia’s carrier partner for Lumia 900.

We currently have a long-term Neutral recommendation on Nokia. However, for the short term (1-3 months), the stock has a Zacks #3 Rank (Hold).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/