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Nokia (NOK) Beats Q2 Earnings Estimates, Raises 2021 Outlook

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Nokia Corporation NOK reported healthy second-quarter 2021 results, wherein the bottom line beat the Zacks Consensus Estimate.

The Finland-based company has made significant progress on its three-phased journey of value creation. Its strategy includes Reset (2021 focus), Accelerate (2022 and mid-term) and Scale.

Nokia’s focus on capital allocation and technology leadership in 2021 is expected to aid it to grow profitably in 2022 and beyond.

Net Income

Reported profit (from continuing operations) in the June quarter was €344 million or €0.06 per share compared with €94 million or €0.01 per share in the prior-year quarter. The improvement primarily resulted from higher operating profit.

Comparable profit came in at €532 million ($641 million) or €0.09 (11 cents) per share, up from €311 million or €0.06 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents.

Nokia Corporation Price, Consensus and EPS Surprise

Nokia Corporation Price, Consensus and EPS Surprise
Nokia Corporation Price, Consensus and EPS Surprise

Nokia Corporation price-consensus-eps-surprise-chart | Nokia Corporation Quote


On a constant currency basis, quarterly net sales grew 9% year over year to €5,313 million ($6,401 million). This was driven by growth across all business groups, with particular strength in Network Infrastructure. Reported net sales increased 4.3%. The top line marginally missed the consensus estimate of $6,407 million.

Reported sales declined in three out of the seven regions on a year-over-year basis — Asia Pacific, Middle East & Africa and North America — by 9%, 1% and 4%, respectively. The same increased in Europe, Greater China, India and Latin America by 6%, 11%, 62% and 50%, respectively.

Segment Results

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

On a constant currency basis, net sales in Mobile Networks grew 3% year over year to €2,380 million, driven by strong growth in 5G. This was partly offset by a decline in legacy radio access products. The segment’s gross margin surged 460 basis points (bps) to 39.6%. Operating margin increased 490 bps to 9.2%.

Network Infrastructure sales were up 20% year over year to €1,778 million. The growth was driven by all four businesses (IP Networks, Optical Networks, Fixed Networks and Submarine Networks) within it. Gross margin increased 100 bps to 34.9%. Operating margin jumped 690 bps to 3.7%.

Cloud and Network Services sales rose 2% year over year to €703 million. This was primarily driven by Core Networks, reflecting broad-based growth across most regions, and Enterprise Solutions. Gross margin fell 50 bps to 31.4%. Operating margin improved 170 bps to -5.8%.

Nokia Technologies sales grew 20% year over year to €401 million, led by catch-up sales related to new patent license agreements as well as higher patent licensing sales. Gross margin improved 40 bps to 99.8%. Operating margin jumped 300 bps to 82.5%.

Sales in Group Common and Other declined 14% year over year to €62 million due to Radio Frequency Systems. Gross margin was -4.8%, down 750 bps.

Other Details

Cost of sales decreased to €3,133 million from €3,151 million in the prior-year quarter. Gross profit increased 12.2% to €2,179 million. Operating profit was €484 million compared with €170 million a year ago.

Cash Flow & Liquidity

During the first half of 2021, Nokia generated €1,410 million of net cash from operating activities compared with €467 million in the prior-year period.

As of Jun 30, 2021, the company had €7,252 million ($8,614 million) in cash and cash equivalents with €4,504 million ($5,350 million) of long-term interest-bearing liabilities.

2021 Outlook Raised

Though headwinds are expected to persist in the second half, Nokia has raised outlook for full-year 2021. It now expects net sales between €21.7 billion and €22.7 billion (adjusted from €20.6 billion and €21.8 billion). Operating margin is estimated between 10% and 12% (adjusted from 7% and 10%). ROIC is projected between 17% and 21% (adjusted from 10% and 15%).

Zacks Rank & Stocks to Consider

Nokia currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector are 360 DigiTech, Inc. QFIN, Blucora, Inc. BCOR and Seagate Technology Holdings plc STX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

360 DigiTech delivered a trailing four-quarter earnings surprise of 42.2%, on average.

Blucora pulled off a trailing four-quarter earnings surprise of 3.8%, on average.

Seagate delivered a trailing four-quarter earnings surprise of 11.4%, on average.

Conversion rate used:

€1 = $1.204663 (period average from Apr 1, 2021 to Jun 30, 2021)

€1 = $1.187784 (as of Jun 30, 2021)

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