Nokia Predicts Earnings Growth Through 2020
Nokia (NYSE: NOK) reported its fourth-quarter results before the market opened on Jan. 31. The company managed to grow sales and profit, and it provided guidance for the next two years that calls for solid earnings growth. Here's what investors need to know.
Nokia results: The raw numbers
Metric | Q4 2018 | Q4 2017 | Year-Over-Year Change |
|---|---|---|---|
Sales | 6.87 billion euros | 6.65 billion euros | 3.3% |
Profit | 741 million euros | 716 million euros | 3.5% |
Earnings per share | 0.13 euros | 0.13 euros | Flat |
Data source: Nokia. All figures non-IFRS.
What happened with Nokia this quarter?
Currency had a negligible impact on Nokia's total revenue.
Nokia's networks revenue rose 7% year over year to 6.22 billion euros. Within the networks segment, ultra-broadband networks revenue rose 7% to 2.65 billion euros, global services revenue rose 7% to 1.77 billion euros, and IP networks and applications revenue rose 5% to 1.71 billion euros.
Networks' gross margin increased by 210 basis points year over year to 39.7%. Operating margin rose 240 basis points to 13.5%.
Nokia Technologies revenue declined by 24% year over year to 423 million euros. Gross margin rose 470 basis points year over year to 99.3%, while operating margin jumped 1,180 basis points to 82%.
The decline in Nokia Technologies' revenue was a result of the absence of 15 million euros of revenue related to digital health and digital media, as well as lower one-time net sales. This was partially offset by higher recurring licensing sales.
HMD Global, Nokia's brand licensee for smartphones, announced the Nokia 8.1, the Nokia 7.1, and the Nokia 3.1 Plus, adding to its portfolio of Nokia-branded smartphone models.
Nokia will change its financial reporting structure beginning in the first quarter of 2019. The company's new reporting segments will be Networks, Nokia Software, and Nokia Technologies.
Nokia provided the following guidance:
Nokia expects to produce non-IFRS earnings per share between 0.25 euros and 0.29 euros in 2019, and between 0.37 euros and 0.42 euros in 2020.
Non-IFRS operating margin is expected to be between 9% and 12% in 2019, and between 12% and 16% in 2020.
Recurring free cash flow is expected to be "slightly positive" in 2019 and "clearly positive" in 2020.
Nokia plans to return between 40% and 70% of its non-IFRS EPS in the form of dividends over the long term.
As part of its 2019-2020 cost-savings program, Nokia expects to achieve 700 million euros in annual cost savings, mostly in 2020.
Image source: Nokia.
What management had to say
Nokia CEO Rajeev Suri laid out an optimistic long-term view in his remarks:
Over the longer-term, we expect a virtuous cycle of investment, where operators update their networks across multiple domains -- from optical to macro radio, fixed wireless access to cloud core, small cells to IP routing, network agnostic software and more. Following this, we expect a second wave where industrial customers will invest in private wireless technology including LTE and 5G-ready networks.
Suri also detailed his expectations for 2019:
Looking forward, I expect Nokia's performance to strengthen for the full year 2019 versus 2018 and our view of a fast and meaningful shift to 5G remains unchanged. Given that 5G rollouts will be staggered over the course of the year, we expect 2019 to have a soft first half followed by a much more robust second half.
Looking forward
Nokia managed to grow both revenue and profit during the fourth quarter, and it expects meaningful earnings growth over the next two years. That bottom-line improvement will be driven by cost-cutting in addition to the rollout of 5G technology.
Although the stock performed well, 2018 wasn't a great year for Nokia, with revenue down and adjusted earnings per share slumping about 30%. 2019 and 2020 are shaping up to be much better.
More From The Motley Fool
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
