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Ericsson (ERIC) Q4 Earnings Decline, Revenues Surge Y/Y

Ericsson ERIC reported fourth-quarter 2022 results with the top line missing the Zacks Consensus Estimate and the bottom line matching the same. Macroeconomic headwinds and uncertain economic conditions hampered company’s fourth-quarter earnings. High growth in emerging markets such as India cushioned the top line performance.

Net Income

Ericsson booked a net profit of SEK 6.2 billion ($578.3 million) or SEK 1.82 (16 cents) per share in the fourth-quarter of 2022 compared with SEK 10.1 billion or SEK 3.02 per share in the year-ago quarter. Adjusted earnings for the quarter came in at 20 cents per share, which matched the Zacks Consensus Estimate.

Ericsson Price, Consensus and EPS Surprise

 

Ericsson price-consensus-eps-surprise-chart | Ericsson Quote

 

Revenues

Revenues were up 21% year over year to SEK 86 billion ($8.023 billion) as the company witnessed sales growth in all segments. A significant portion of the revenue came from Network sales followed by cloud software and services.  The top line missed the consensus estimate of $8,027 million.

Segment Results

Network sales accounted for SEK 58.6 billion ($5.46 billion) which is 15% higher than the year ago quarter. The segment’s gross margin declined to 44.6% from 46.4% due to business mix shift following market share gains in several geographies. Double digit growth achieved in India, South East Asia were compensated by a decline in other market areas. Due to increased expenditure on R&D, EBIT margin declined from 23.6% year over quarter to 21.4% in the fourth quarter of 2022.

Cloud software and services contributed SEK 20.2 billion ($1.88 billion) which is 13% higher than the year-ago quarter’s levels. The company experienced sales growth in North America primarily due to 5G core contracts. Good performance in North America is countered by a decline in other market areas.  The segment was impacted by a one-off charge for exiting subscale agreements and product offerings and a less favorable business mix. IPR is gaining a substantial share of the sales mix. As a result gross margin declined to 33% from 36.1%.

Enterprise sales were SEK 6.6 billion ($615 million), up 265%. The upside was driven by growth of organic sales in all business areas. The segment’s gross margin declined to 43.9% from 46.5%. The fall in gross margin was primarily caused by Vonage’s dilutive effect on the segment.

Other revenues reported at SEK 562 million ($52.4 million) which is higher than SEK 478 million reported in the prior quarter.

Other Details

Gross income increased to SEK 35.6 billion ($3.3 billion) from SEK 30.8 billion in the prior year. Due to business mix change in Networks and previously announced charges for contract exits and portfolio adjustments in Cloud Software and Services, the overall gross margin declined to 41.4% from 43.2% in the previous year’s quarter. Ericsson reported earnings before interest and taxes at SEK 7.9 billion ($736 million) which is less than the prior year’s figure of SEK 11.9 billion.

Cash Flow and Liquidity

Ericsson generated SEK 19.9 billion ($1.9 billion) cash from operating activities in the quarter. For the year, it generated SEK 30.9 billion ($2.96 billion) as cash from operating activities compared with SEK 39.1 billion in the previous year.

Outlook

In December, Ericsson signed a multiyear IPR agreement and the company expects significant growth in IPR revenues over the coming 18 to 24 months. The company expects the gross margin will be at the range of 40-42% in the Networks segment due to business mix shifts. For first quarter of 2023, the company anticipates a lower EBITDA for the group compared with the last year’s levels, which will likely improve during the year.

Zacks Rank & Other Stocks to Consider

Ericsson currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Juniper Networks JNPR, carrying a Zacks Rank #2, delivered an earnings surprise of 3%, on average, in the trailing four quarters. Earnings estimates for JNPR for the current year have remained unchanged in the past 60 days at $1.95 per share.

Juniper is a leading provider of networking solutions and communication devices. The company develops designs and sells products that help to build network infrastructure used for services and applications based on single Internet protocol network worldwide.

Motorola Solutions, Inc. MSI, carrying a Zacks Rank #2, delivered an earnings surprise of 6.6%, on average, in the trailing four quarters. Earnings estimates for MSI for the current year have remained unchanged in the past 60 days at $10.20 per share.

Motorola is a leading communications equipment manufacturer and has strong market positions in bar code scanning, wireless infrastructure gear, and government communications.

Arista Networks, Inc. ANET, carrying a Zacks Rank #2, delivered an earnings surprise of 12.7%, on average, in the trailing four quarters. Earnings estimates for ANET for the current year have moved up by 1 cent in the past 60 days to $4.38 per share.

Arista is engaged in providing 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.

Note: SEK 1 = $0.093277 (period average from Oct 1, 2023 to Dec 31, 2022)
         SEK 1 = $0.095804 (as of Dec 31, 2022)

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