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Nokia (NOK) Surpasses Q3 Earnings Estimates on Solid 5G Growth

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Nokia Corporation (NOK - Free Report) reported mixed third-quarter 2021 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same.

The Finland-based company has made significant progress in its three-phased journey of value creation. Its strategy includes Reset (2021 focus), Accelerate (2022 and mid-term) and Scale. Its product supply continues to take a hit due to the global semiconductor shortage. As a result, it is proactively working with suppliers to ensure component availability as well as to meet customer demand.

Nokia’s focus on capital allocation and technology leadership in 2021 is expected to aid it to grow profitably in 2022 and beyond. Its earnings and revenues increased on a year-over-year basis with continued strong execution across the business, improved cost competitiveness, solid 5G traction, and cash generation.

Net Income

Reported profit (from continuing operations) in the September quarter was €342 million or €0.06 per share compared with €193 million or €0.04 per share in the prior-year quarter. The year-over-year improvement primarily resulted from higher operating profit.

Comparable profit came in at €454 million ($535.3 million) or €0.08 (9 cents) per share, up from €300 million or €0.05 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by a penny.

Nokia Corporation Price, Consensus and EPS Surprise

Nokia Corporation Price, Consensus and EPS Surprise

Revenues

On a constant currency basis, quarterly net sales grew 2% year over year to €5,399 million ($6,366 million). This was driven by continued strength in Network Infrastructure and Cloud & Network Services with double-digit growth. Global supply chain constraints and weak Mobile Networks division in North America acted as major headwinds. Reported net sales increased 2%. The top line, however, lagged the consensus estimate of $6,556 million.

Reported sales declined in four out of the seven regions on a year-over-year basis — Europe, Greater China, India, and the Middle East & Africa — by 5%, 4%, 6%, and 7%, respectively. The same increased in the Asia Pacific, Latin America, and North America by 16%, 7%, and 8%, respectively. Thanks to a robust 5G demand environment and strong profitability, Nokia now has more than 380 private wireless customers.

Segment Results

Nokia’s new operating model is delivering financial discipline across the organization.

On a constant currency basis, net sales in Mobile Networks fell 5% year over year to €2,315 million, primarily due to headwinds in North America related to market share loss and price erosion, and supply chain woes stemming from the pandemic together with a decline in legacy radio access products. However, the segment is showing progress in cost competitiveness, improvements in indirect cost of sales and favorable customer mix. The segment’s gross margin surged 180 basis points (bps) to 37.7%. Operating margin decreased 150 bps to 5.9%.

Network Infrastructure sales were up 6% year over year to €1,915 million. The growth was driven by all four businesses (IP Networks, Optical Networks, Fixed Networks, and Submarine Networks) within it. Gross margin increased 30 bps to 35.7%. Operating margin plunged 140 bps to 5.2%.

Cloud and Network Services sales rose 12% year over year to €748 million. The increase was mainly driven by the absence of a project-related loss provision that negatively impacted third-quarter 2020, as well as higher net sales and overall operational improvements. Strength across Core Networks and Enterprise Solutions was a pivotal factor as well. Gross margin soared 1,960 bps to 37.2%. Operating margin improved 2,540 bps to 3.1%.

Nokia Technologies sales grew 11% year over year to €367 million led by catch-up sales related to new patent license agreements as well as higher patent licensing sales. Gross margin improved 90 bps to 99.7%. Operating margin declined 180 bps to 77.7%.

Sales in Group Common and Other declined 5% year over year to €64 million due to Radio Frequency Systems. Gross margin was -9.4%, down 1,690 bps.

Other Details

Cost of sales decreased to €3,203 million from €3,331 million in the prior-year quarter. Gross profit increased 11.9% to €2,196 million. Operating profit was €502 million compared with €350 million a year ago.

Cash Flow & Liquidity

During the first nine months of 2021, Nokia generated €2,139 million of net cash from operating activities compared with €880 million in the prior-year period.

As of Sep 30, 2021, the company had €6,903 million ($7,999.7 million) in cash and cash equivalents with €4,524 million ($5,242.8 million) of long-term interest-bearing liabilities.

2021 Outlook Reiterated

Though headwinds are expected to persist in the second half, Nokia has kept its outlook for full-year 2021 unchanged. It expects net sales between €21.7 billion and €22.7 billion. Operating margin is estimated between 10% and 12%. ROIC is projected between 17% and 21%.

Zacks Rank & Other Stocks to Consider

Nokia currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader industry are Ooma, Inc. (OOMA - Free Report) , Clearfield, Inc. (CLFD - Free Report) , and Ubiquiti Inc. (UI - Free Report) . While Ooma and Clearfield sport a Zacks Rank #1 (Strong Buy), Ubiquiti carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ooma delivered a trailing four-quarter earnings surprise of 55.2%, on average.

Clearfield pulled off a trailing four-quarter earnings surprise of 49%, on average.

Ubiquiti delivered a trailing four-quarter earnings surprise of 20.5%, on average.

Conversion rate used:

€1 = $1.178986 (period average from Jul 1, 2021 to Sep 30, 2021)

€1 = $1.158878 (as of Sep 30, 2021)


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