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Ericsson (ERIC) Q1 Earnings Miss Estimates, Revenues Beat

Zacks Equity Research
·4-min read

Ericsson ERIC reported mixed first-quarter 2022 results, wherein the bottom line missed the Zacks Consensus Estimate, but the top line beat the same.

The Sweden-based company continues to execute its strategy to become a leading mobile infrastructure provider and establish a focused enterprise business.

Net Income

Net income in the quarter was SEK 2,940 million ($314.6 million) or SEK 0.88 (10 cents) per share compared with SEK 3,187 million or SEK 0.96 per share in the prior-year quarter. The decline was due to the provision related to Russia. The bottom line missed the Zacks Consensus Estimate by 5 cents.

Ericsson Price, Consensus and EPS Surprise

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

Revenues

Quarterly reported net sales increased 10.6% year over year to SEK 55,061 million ($5,892.6 million). Organic sales (adjusted for comparable units and currency) grew 3%, driven by Networks in North America, Europe and Latin America. The top line beat the consensus estimate of $5,877 million.

Segment Results

Sales in Networks (which accounts for the lion’s share of total sales) increased 12.1% year over year to SEK 40.7 billion, driven by growth in North America, Europe and Latin America. Organic sales grew 4%. The segment’s gross margin declined to 44.7% from 46.1% as operational leverage was negatively impacted by investments in supply chain resilience.

Digital Services’ sales grew 4.3% year over year to SEK 7.2 billion, led by growth in North America. The segment’s gross margin declined to 42.9% from 43.5%, primarily due to initial deployment costs for the cloud-native 5G Core portfolio.

Managed Services’ sales grew 2% year over year to SEK 4.9 billion, driven by higher sales in Network Optimization. The segment’s gross margin increased to 23.2% from 19.4%, led by reduced restructuring charges, higher Network Optimization sales and timing of costs. Ericsson’s investments in automation, analytics and AI-driven offerings are supporting 5G and efficiency in service delivery.

Sales in Emerging Business and Other jumped 26% year over year to SEK 2.2 billion, mainly driven by Cradlepoint. The segment’s gross margin improved to 38.1% from 36.6%.

Other Details

Overall gross margin decreased to 42.3% year over year from 42.8%, negatively impacted by investments in supply chain resilience in Networks and higher deployment costs for the 5G Core portfolio. Total operating expenses were SEK 17.5 billion compared with SEK 16 billion in the prior-year quarter. EBIT was SEK 4.7 billion, down from SEK 5.3 billion, affected by the provision related to Russia and increased R&D investments.

Cash Flow & Liquidity

During the first quarter of 2022, Ericsson generated SEK 30 million of cash from operating activities compared with SEK 3,205 million in the prior-year quarter.

As of Mar 31, 2022, the company had SEK 76,856 million ($8,246.6 million) in cash and cash equivalents with SEK 28,599 million ($3,068.7 million) of non-current borrowings.

Zacks Rank & 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.

Gogo Inc. GOGO is a better-ranked stock in the broader Zacks Computer and Technology sector, sporting a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 25% over the past 60 days.

Gogo delivered a trailing four-quarter earnings surprise of 65%, on average. It has soared 117.5% in the past year.

Nokia NOK, carrying a Zacks Rank #2 (Buy), is another solid pick for investors. The consensus estimate for current-year earnings has been revised upward by 5% over the past 60 days.

Nokia pulled off a trailing four-quarter earnings surprise of 205.2%, on average. It has moved up 27.1% in the past year.

Sierra Wireless, Inc. SWIR carries a Zacks Rank #2. The consensus mark for current-year earnings has been revised upward by 237.5% over the past 60 days.

Sierra Wireless pulled off a trailing four-quarter earnings surprise of 58%, on average. The stock has returned 14.6% in the past year.

Conversion rate used:

SEK 1 = $0.107019 (period average from Jan 1, 2022 to Mar 31, 2022)

SEK 1 = $0.107300 (as of Mar 31, 2022)


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