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Nokia (NOK) Q1 Earnings Miss Estimates, Revenues Up Y/Y

Zacks Equity Research

Nokia Corporation NOK reported lower-than-expected first-quarter 2019 financial results, wherein both the bottom line and the top line missed the respective Zacks Consensus Estimate.

Net Loss

Reported loss for the quarter was €442 million ($501.9 million) or loss of €0.08 (9 cents) per share compared with loss of €354 million or loss of €0.06 per share in the prior-year quarter due to higher cost of sales.

Non-IFRS loss was €116 million ($131.7 million) or loss of €0.02 (2 cents) per share against profit of €83 million or €0.02 per share in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate by 5 cents.

Nokia Corporation Price, Consensus and EPS Surprise

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

Revenues

On a reported basis, net sales for the quarter increased 2.2% year over year to €5,032 million ($5,713.7 million), indicating the competitiveness of its offerings as well as an improving industry environment, driven by strong 5G customer engagement in all key markets across portfolio. While net sales improved in Asia-Pacific, Latin America and North America (up 6%, 3% and 9%, respectively), it declined in Greater China and Middle East & Africa (down 10% and 4%, respectively). Europe’s revenues were almost stable year over year.

Non-IFRS net sales increased 2.6% to €5,057 million ($5,742.1 million), missing the Zacks Consensus Estimate of $5,771 million.

Other Details

Non-IFRS gross profit decreased 15.5% year over year to €1,641 million due to higher cost of sales. Non-IFRS cost of sales increased to €3,416 million from €2,988 million. Non-IFRS operating loss was €59 million against operating profit of €239 million in the year-ago quarter.

Segmental Performance

In Networks, net sales increased 4.3% year over year to €3,944 million ($4,478.3 million). The segment’s gross margin declined 790 basis points (bps) to 26.9%. Operating margin declined 760 bps to a negative 6.4%, owing to lower gross profit.

Net sales in Nokia Software were almost flat year over year at €543 million ($616.6 million), primarily due to applications and core networks. While the segment’s gross margin declined 280 bps to 40.3%, its operating margin decreased 150 bps to negative 1.3%.

Net sales in Nokia Technologies were up 1.4% year over year to €370 million ($420.1 million), primarily due to higher one-time catch-up net sales related to a new license agreement and the sale of certain patents. While the segment’s gross margin declined 80 bps to 96.5%, its operating margin expanded 650 bps to 81.6%.

In Group Common and Other, net sales decreased 12.7% year over year to €220 million ($249.8 million), primarily due to Alcatel Submarine Networks, partly offset by Radio Frequency Systems. The decline in Alcatel Submarine Networks was due to the completion of specific projects, which benefited the year-ago quarter. The segment’s gross margin was 1.8%, down 1,250 bps.

Cash Flow & Liquidity

During the first quarter, Nokia utilized €526 million ($597.3 million) of cash in operations against a cash generation of €143 million in the year-ago period.

As of Mar 31, 2019, the technology company had €5,862 million ($6,575.4 million) in cash and equivalents with €3,650 million ($4,094.2 million) of long-term interest-bearing liabilities compared with the respective tallies of €6,555 million and €3,169 million a year ago.

Guidance Reiterated

Supported by expected 5G ramp up, Nokia has reiterated its guidance for 2019 and expects non-IFRS operating margin between 9% and 12%. Non-IFRS earnings per share are expected in the range of €0.25-€0.29.

Going Forward

Nokia continues to execute its strategy with particularly good progress in Nokia Software and expansion to select enterprise vertical markets. It aims to accelerate strategy execution, sharpen customer focus and reduce long-term costs. This will help the company position itself for long-term 5G leadership and reaffirm commitment to full-year 2020 non-IFRS operating margin between 12% and 16% and non-IFRS earnings per share in the range of €0.37-€0.42 guidance.

Zacks Rank & Stocks to Consider

Nokia currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Ericsson ERIC, PCTEL, Inc. PCTI and Juniper Networks, Inc. JNPR. While Ericsson and PCTEL sport a Zacks Rank #1 (Strong Buy), Juniper carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.         

Ericsson currently has a forward P/E (F1) of 27.4x.

PCTEL currently has a forward P/E (F1) of 61.8x.

Juniper has long-term earnings growth expectation of 7.1%.

Conversion rate used:

€1 = $1.135469 (period average from Jan 1, 2019 to Mar 31, 2019)

€1 = $1.121707 (as of Mar 31, 2019)


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