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Ericsson (ERIC) Q1 Earnings Beat Estimates, Revenues Surge Y/Y
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Ericsson (ERIC - Free Report) reported healthy first-quarter 2023 results beating the bottom- and top-line estimates. The leading provider of communication networks, telecom services witnessed a top-line expansion year over year. The upside was driven by solid sales growth in India and South East Asia. However, declining sales in North America owing to inventory adjustments and near-term uncertainty partially offset the top line.
Net Income
Ericsson generated a net profit of SEK 1.6 billion ($153.1 million) or SEK 0.45 (4 cents) per share in first-quarter 2023 compared with SEK 2.9 billion or SEK 0.88 per share in the year-ago quarter. The decline in net income despite a top line improvement is primarily caused by higher research and development expenses, and administrative costs. Adjusted earnings for the quarter came in at 8 cents per share, which beat the Zacks Consensus Estimate by 4 cents.
Revenues were up 14% year over year to SEK 62.6 billion ($6 billion) from SEK 55.1 billion reported in the prior-year quarter. Solid momentum in emerging markets such as India and other parts of South East Asia cushioned the top line. High demand in cloud software services and Enterprise business also supported the top line, which beat the consensus estimate of $5,988 million.
Segment Results
Network sales aggregated SEK 42.5 billion ($4.06 billion), which is 4% higher than the year-ago quarter’s figure of SEK 40.7 billion. The segment’s gross margin declined to 39.7% from 44.7% in the prior-year quarter. The decline is primarily attributed to a 30% drop in sales in North America caused by inventory adjustments and a reduction in capital expenditure from operators. However, sales from South East Asia, Oceania and India witnessed a staggering growth of 184% primarily driven by market share gains in India.
Cloud software and services contributed SEK 13.4 billion ($1.3 billion) to total revenues, up 11% year over year. The company witnessed sales growth in North America, South East Asia, Oceania and India as well as North East Asia. Gross margin, excluding restructuring charges, rose to 36.1% from 35% reported in the prior-year quarter. This is primarily due to a favorable sales mix and increased IPR licensing revenues.
Enterprise sales were SEK 6 billion ($574.2 million), up 275% from the year-ago quarter’s level of SEK 1.6 billion. The Vonage acquisition and sales growth of Enterprise Wireless Solution accelerated the revenue generation from this segment. Gross margin, excluding restructuring charges, fell to 47.6% from 55.2% in the year-ago quarter. The downside was caused by the consolidation of Vonage with a lower gross margin compared with the other part of the Enterprise segment.
Other revenues were SEK 0.7 billion ($67 million), up 4% year over year due to sales growth in the media business. However, the decline in loT sales partially offset this gain.
Net Sales from South East Asia, Oceania and India aggregated at SEK 13.9 billion ($1.33 billion) up 138% year over year owing to 5G expansion in India and project wins in the Philippines and Malaysia. Revenues from Europe and Latin America declined by 7% year over year. Due to high inventory levels and low capex spending revenues from North America, revenues declined by 18% year over year. After a period of high 5G investment in 2022, the North East Asian markets witnessed a declining investment which led to a 20% year-over-year decline in net sales from this region. Net sales from other regions increased to SEK 8.9 billion ($851.8 million) from the year-ago levels of SEK 3.5 billion owing to higher revenues from IPR licensing and Enterprise Wireless Solutions.
Other Details
Gross margin excluding restructuring charges declined to 39.8% compared with 42.3% owing to the changed business mix in Networks. Gross income excluding restructuring charges rose to SEK 24.9 billion ($2.38 billion) from the year-ago figure of SEK 23.3 billion. The growth is mainly driven by Enterprise, Cloud software and services business.
Cash Flow and Liquidity
Ericsson utilized SEK 5.8 billion ($555 million) cash in operating activities during the quarter. As of Mar 31, 2023, the company has net cash of SEK 13.6 billion ($1.31 billion) compared with the previous year’s figure of SEK 65.2 billion.
Outlook
The management expects near-term uncertainty to prevail as operators remain cautious with their capex expenses and inventory adjustments. The company expects gross margin to be in the range of 37-39% in the Networks segment. For the second quarter, the company anticipates a positive seasonality in the Cloud software and services segment. In the second quarter, Network sales are expected to be in line with first-quarter levels and a slowdown in sales growth rate is expected in the Enterprise segment.
Management is planning to enhance cost efficiency and reduce costs by SEK 11 billion by 2023. For the full year, the company estimates restructuring costs of around SEK 7 billion, with more than half likely to be incurred in the second quarter.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), delivered an earnings surprise of 14.17%, on average, in the trailing four quarters. Earnings estimates for ANET for the current year stand at $5.83 per share. Arista provides cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next-generation data center networks.
It continues 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. It is well-poised for growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista has introduced network observability software, DANZ Monitoring Fabric (DMF), on its switching platforms for enterprise-wide traffic visibility and contextual insights.
Juniper Networks, Inc. (JNPR - Free Report) , carrying a Zacks Rank #2, delivered an earnings surprise of 1.55%, on average, in the trailing four quarters. It is witnessing strong momentum across its core industry verticals and is confident of its long-term prospects. Investments in customer solutions and sales organizations have enabled the company to capitalize on the solid demand across end markets.
Juniper is a leading provider of networking solutions and communication devices. The company develops, designs and sells products that help build a network infrastructure for services and applications based on a single Internet protocol network worldwide. The company caters to the networking needs of enterprises, public sector organizations and service providers across the globe.
Splunk Inc. , sporting a Zacks Rank #1, delivered an earnings surprise of 131.1%, on average, in the trailing four quarters. In the last reported quarter, it delivered an earnings surprise of 83.78%. Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company's offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source and help in operational decision-making.
Its software has a broad range of applications, including security analytics, business analytics and IT operations. Splunk is benefiting from healthy customer engagement, evident from the consistently high net retention and competitive win rates alongside solid momentum with large orders overall.
Note: SEK 1 = $0.095706 (period average from Jan 1, 2023 to Mar 31, 2023) SEK 1 = $0.096461 (as of Mar 31, 2023)
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Ericsson (ERIC) Q1 Earnings Beat Estimates, Revenues Surge Y/Y
Ericsson (ERIC - Free Report) reported healthy first-quarter 2023 results beating the bottom- and top-line estimates. The leading provider of communication networks, telecom services witnessed a top-line expansion year over year. The upside was driven by solid sales growth in India and South East Asia. However, declining sales in North America owing to inventory adjustments and near-term uncertainty partially offset the top line.
Net Income
Ericsson generated a net profit of SEK 1.6 billion ($153.1 million) or SEK 0.45 (4 cents) per share in first-quarter 2023 compared with SEK 2.9 billion or SEK 0.88 per share in the year-ago quarter. The decline in net income despite a top line improvement is primarily caused by higher research and development expenses, and administrative costs. Adjusted earnings for the quarter came in at 8 cents per share, which beat the Zacks Consensus Estimate by 4 cents.
Ericsson Price, Consensus and EPS Surprise
Ericsson price-consensus-eps-surprise-chart | Ericsson Quote
Revenues
Revenues were up 14% year over year to SEK 62.6 billion ($6 billion) from SEK 55.1 billion reported in the prior-year quarter. Solid momentum in emerging markets such as India and other parts of South East Asia cushioned the top line. High demand in cloud software services and Enterprise business also supported the top line, which beat the consensus estimate of $5,988 million.
Segment Results
Network sales aggregated SEK 42.5 billion ($4.06 billion), which is 4% higher than the year-ago quarter’s figure of SEK 40.7 billion. The segment’s gross margin declined to 39.7% from 44.7% in the prior-year quarter. The decline is primarily attributed to a 30% drop in sales in North America caused by inventory adjustments and a reduction in capital expenditure from operators. However, sales from South East Asia, Oceania and India witnessed a staggering growth of 184% primarily driven by market share gains in India.
Cloud software and services contributed SEK 13.4 billion ($1.3 billion) to total revenues, up 11% year over year. The company witnessed sales growth in North America, South East Asia, Oceania and India as well as North East Asia. Gross margin, excluding restructuring charges, rose to 36.1% from 35% reported in the prior-year quarter. This is primarily due to a favorable sales mix and increased IPR licensing revenues.
Enterprise sales were SEK 6 billion ($574.2 million), up 275% from the year-ago quarter’s level of SEK 1.6 billion. The Vonage acquisition and sales growth of Enterprise Wireless Solution accelerated the revenue generation from this segment. Gross margin, excluding restructuring charges, fell to 47.6% from 55.2% in the year-ago quarter. The downside was caused by the consolidation of Vonage with a lower gross margin compared with the other part of the Enterprise segment.
Other revenues were SEK 0.7 billion ($67 million), up 4% year over year due to sales growth in the media business. However, the decline in loT sales partially offset this gain.
Net Sales from South East Asia, Oceania and India aggregated at SEK 13.9 billion ($1.33 billion) up 138% year over year owing to 5G expansion in India and project wins in the Philippines and Malaysia. Revenues from Europe and Latin America declined by 7% year over year. Due to high inventory levels and low capex spending revenues from North America, revenues declined by 18% year over year. After a period of high 5G investment in 2022, the North East Asian markets witnessed a declining investment which led to a 20% year-over-year decline in net sales from this region. Net sales from other regions increased to SEK 8.9 billion ($851.8 million) from the year-ago levels of SEK 3.5 billion owing to higher revenues from IPR licensing and Enterprise Wireless Solutions.
Other Details
Gross margin excluding restructuring charges declined to 39.8% compared with 42.3% owing to the changed business mix in Networks. Gross income excluding restructuring charges rose to SEK 24.9 billion ($2.38 billion) from the year-ago figure of SEK 23.3 billion. The growth is mainly driven by Enterprise, Cloud software and services business.
Cash Flow and Liquidity
Ericsson utilized SEK 5.8 billion ($555 million) cash in operating activities during the quarter. As of Mar 31, 2023, the company has net cash of SEK 13.6 billion ($1.31 billion) compared with the previous year’s figure of SEK 65.2 billion.
Outlook
The management expects near-term uncertainty to prevail as operators remain cautious with their capex expenses and inventory adjustments. The company expects gross margin to be in the range of 37-39% in the Networks segment. For the second quarter, the company anticipates a positive seasonality in the Cloud software and services segment. In the second quarter, Network sales are expected to be in line with first-quarter levels and a slowdown in sales growth rate is expected in the Enterprise segment.
Management is planning to enhance cost efficiency and reduce costs by SEK 11 billion by 2023. For the full year, the company estimates restructuring costs of around SEK 7 billion, with more than half likely to be incurred in the second quarter.
Zacks Rank & Stocks to Consider
Ericsson currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), delivered an earnings surprise of 14.17%, on average, in the trailing four quarters. Earnings estimates for ANET for the current year stand at $5.83 per share. Arista provides cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next-generation data center networks.
It continues 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. It is well-poised for growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista has introduced network observability software, DANZ Monitoring Fabric (DMF), on its switching platforms for enterprise-wide traffic visibility and contextual insights.
Juniper Networks, Inc. (JNPR - Free Report) , carrying a Zacks Rank #2, delivered an earnings surprise of 1.55%, on average, in the trailing four quarters. It is witnessing strong momentum across its core industry verticals and is confident of its long-term prospects. Investments in customer solutions and sales organizations have enabled the company to capitalize on the solid demand across end markets.
Juniper is a leading provider of networking solutions and communication devices. The company develops, designs and sells products that help build a network infrastructure for services and applications based on a single Internet protocol network worldwide. The company caters to the networking needs of enterprises, public sector organizations and service providers across the globe.
Splunk Inc. , sporting a Zacks Rank #1, delivered an earnings surprise of 131.1%, on average, in the trailing four quarters. In the last reported quarter, it delivered an earnings surprise of 83.78%. Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company's offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source and help in operational decision-making.
Its software has a broad range of applications, including security analytics, business analytics and IT operations. Splunk is benefiting from healthy customer engagement, evident from the consistently high net retention and competitive win rates alongside solid momentum with large orders overall.
Note: SEK 1 = $0.095706 (period average from Jan 1, 2023 to Mar 31, 2023)
SEK 1 = $0.096461 (as of Mar 31, 2023)