Nokia (NOK) Q3 Earnings In Line, Revenues Beat Estimates

Finland-based Nokia (HE:NOKIA) Corporation’s (NYSE:NOK) third-quarter 2016 earnings per share (on an adjusted basis) of €0.04 (approximately 5 cents) came in line with the Zacks Consensus Estimate. In the year-ago period, Nokia had reported earnings of €0.08 (9 cents) per share.

Net sales improved year over year (on a comparable combined company basis) to €5.95 billion (approximately $6.57 billion). The top line also beat of the Zacks Consensus Estimate of $6.54 billion. A disappointing performance by the Nokia Networks division hurt the top line, primarily due to weak sales in Mobile Networks, which is part of Ultra Broadband Networks.

Quarterly adjusted gross margin was 39.7% in the reported quarter compared with 37.7% a year ago. Operating margin decreased 140 basis points (bps) to 9.3% on a year-over-year basis. In the third quarter, Nokia generated net cash from operating activities of €230 million as against €460 million at the end of 2015.

Segmental Revenue

In the Nokia Networks segment,total revenue was approximately €5,322 million (around $5,803 million), down 12% year over year (on a comparable combined company basis). The segment includes Ultra Broadband Networks and IP Networks and Applications. The 13% decline in the Ultra Broadband Networks sub-group to €3,903 million hurt segmental sales. The segment’s sales also suffered due to a 9% reduction in net sales of IP Networks and Application to €1,419 million.

Notably, net sales declined in all regions, which led to the segment’s below-par performance. Net sales declined by 6% in North America, by 7% in the Middle East & Africa, by 22% in Latin America, by 10% in the Asia Pacific, by 13% in Greater China and by 18% in Europe. Segmental gross margin contracted 90 bps to 37.6% in the reported quarter. Quarterly adjusted operating margin was 6.9% compared with 10.3% a year ago.

In the Nokia Technologies segment,quarterly total revenue was €353 million (approximately $385 million), up more than 100% year over year. Segmental gross margin was 97.2% compared with 99.2% in the September-end quarter of 2015. Operating margin contracted 500 bps to 56.4%.

In Group Common and Other, net sales surged 41% to €298 million (approximately $325 million). Segmental gross margin was 15.9%. The segment incurred an operating loss in the quarter under review.

Outlook

The telecom giant that officially took control of rival Alcatel-Lucent (PA:ALUA) in Jan 2016 continues to expect annual cost savings of €1.2 billion till 2018, excluding Nokia Technologies. For 2016, capital expenditure outlook for the Zacks Rank #4 (Sell) company has been lowered to approximately €550 million from €650 million expected earlier.

The company expects net sales in its primary networks division to decline in 2016 due to a declining wireless infrastructure market. Segmental operating margin is still forecast in the band of 7–9% for 2016.

Nokia also faces stiff competition from peers like Cisco Systems, Inc. (NASDAQ:CSCO) , Motorola Solutions Inc. (NYSE:MSI) and Zacks Rank #1 (Strong Buy) holder InterDigital Inc. (NASDAQ:IDCC) . You can see the complete list of today’s Zacks #1 Rank stocks here.

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