Nokia (NOK) Earnings Meet, Revenues Miss Estimates in Q2
Finland-based Nokia Corporation’s NOK second-quarter 2016 earnings per share (on an adjusted basis) of €0.03 (approximately 4 cents) were in line with Zacks Consensus Estimate.
This quarter marked the second one for Nokia post the acquisition of Alcatel-Lucent. In the year-ago quarter, Nokia had reported earnings of €0.09 (approximately 10 cents) per share.
Revenues declined 11% year over year (on a comparable combined company basis) to €5.6 billion (approximately $6.3 billion) and also fell short of the Zacks Consensus Estimate of $6.6 billion. A disappointing performance by the Nokia Networks division hurt the top line.
Quarterly adjusted gross margin was 38.8% in the reported quarter, compared with 39.2% in the prior-year quarter. Operating margin decreased 440 basis points to 5.8% on a year-over-year basis. Nokia exited the second quarter of 2016 with net cash from operating activities of negative €620 million, as against €460 million at the end of 2015.
Nokia Networks Segment
Total revenue was approximately €5,228 million (approximately $5,904 million), down 11% year over year (on a comparable combined company basis). At constant currency, segmental net sales were down 9%. Notably, net sales declined in all regions, leading to the segment’s below-par performance. Net sales declined in North America (12%), Middle East & Africa (24%), Latin America (16%), Asia-Pacific (6%), Greater China (5%) and Europe (12%). Segmental gross margin contracted 50 basis points to 37.4% in the reported quarter. Quarterly adjusted operating margin came in at 6% compared with 8.7% a year ago.
The segment includes Ultra Broadband Networks and IP Networks and Applications. The 12% decline in the Ultra Broadband Networks sub-group to €3,807 million hurt segmental sales. Ultra Broadband Networks comprises Mobile Networks and Fixed Networks. Ultra Broadband Networks results suffered due to a 14% reduction in net sales of Mobile Networks to €3,185 million. Fixed Networks net sales climbed 7% to €622 million.
Net sales in the IP Networks and Applications sub-group decreased 11% to €1,421 million mainly due to the 7% decline in net sales at IP/Optical Networks to €1,088 million. Net sales in the Applications & Analytics unit fell 20% to €333 million.
Nokia Technologies Segment
Quarterly total revenue was €194 million (approximately $219 million), down 11% year over year. Adjusted operating margin in the reported quarter fell to 45.9% from 54.6% a year ago.
Group Common and Other
Net sales climbed 7% to €271 million (approximately $306 million). The upside was driven by strong sales at Alcatel Submarine Networks. Segmental net sales increased 3% on a constant currency basis.
NOKIA CP-ADR A Price, Consensus and EPS Surprise
NOKIA CP-ADR A Price, Consensus and EPS Surprise | NOKIA CP-ADR A Quote
Outlook
The telecom giant, that officially took control of rival Alcatel-Lucent in Jan 2016, now expects to realize annual cost synergies of €1.2 billion from the deal in 2018 (the previous guidance had called for net operating cost synergies of over €900 million). Capital expenditure for the company is still projected at approximately €650 million for 2016.
The company expects net sales in its primary networks division to decline in 2016 due to a declining wireless infrastructure market, among other headwinds. Segmental operating margin is now forecasted in the band of 7% to 9% (previous guidance: above 7%) for 2016.
Zacks Rank & Key Picks
Nokia presently carries a Zacks Rank #3 (Hold). Investors interested in the broader Computer & Technology sector may consider NTT DOCOMO Inc. DCM, KT Corp. KT and Nippon Telegraph and Telephone Corp. NTT. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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