Nokia (NOK) Earnings And Revenues Surpass Estimates In Q4

Nokia (HE:NOKIA) Corporation’s (NYSE:NOK) fourth-quarter 2017 earnings (non-IFRS) per share of €0.13 (approximately 15 cents) outpaced the Zacks Consensus Estimate of 11 cents. In the year-ago period, the company had reported earnings of €0.12 (13 cents) per share.

Net sales increased to €6.67 billion (approximately $7.9 billion) year over year . Moreover, the top line surpassed the Zacks Consensus Estimate of $7.32 billion. However, quarterly revenues were hurt by adverse foreign currency movements.

Quarterly adjusted gross margin was 41.4% compared with 42.2% a year ago. Operating margin increased 110 basis points (bps) to 15.1% on a year-over-year basis. Markedly, strong performance in the Nokia Technologies division led to the upsurge.

Segmental Revenues

In the Nokia Networks segment, total revenues were approximately €5,827 million (around $6,863 million), down 4% year over year. However, on a constant currency basis, segmental revenues increased 2% year over year.

Notably, the division includes three reportable sub-units — Ultra Broadband Networks (which includes Mobile Networks and Fixed Networks operations), Global Services (which covers network planning, implementation, system integration, managed services, care services and optimization), and IP Networks and Applications (which includes the IP/Optical Networks and Applications & Analytics operations).

Net sales declined in all sub-units, apart from Greater China (up 7%) and Latin America (flat year over year), which led to the segment’s below-par performance. The same decreased by 10% in North America, 5% each in Asia Pacific, Middle East and Africa, and 1% in Europe. Segmental gross margin also declined 330 bps to 37.6% in the reported quarter. Quarterly operating margin was 11.1% compared with 14.1% a year ago.

Net sales of the Ultra Broadband Networks’ sub-group declined 4% to €2,471 million (around $2,910 million) on adverse foreign exchange movements. Nevertheless, on a constant currency basis, revenues increased 2%.

Meanwhile, the Global Services sub-group registered a 7% decline in net sales to €1,642 million (around $1,934 million). Sales decreased 1%, on a constant currency basis, primarily due to weakness pertaining to network implementation and care services. In the IP Networks and Applications sub-group, net sales were down 1% year over year to €1,714 million (around $2,019 million) due to IP/Optical Networks. On a constant currency basis, sales of this sub-group increased 5%.

The Nokia Technologies segment’s quarterly total revenues were €554 million (approximately $652 million), up 79% year over year. On a constant currency basis, segmental revenues increased 80% year over year. Segmental gross margin was 94.6% compared with 92.9% in the year-ago quarter. Operating margin expanded significantly to 70.2%.

Segmental results were aided by Nokia’s licencing agreement with Huawei. Moreover, Nokia received a favorable verdict in a payment-related dispute with BlackBerry (NYSE:BB) in the reported quarter.

In the Group Common and Other segment, net sales decreased 11% to €302 million (approximately $356 million) mainly due to weakness in Alcatel Submarine Networks and Radio Frequency Systems. On a constant currency basis, segmental revenues decreased 12% year over year. Segmental gross margin was 14.9%, down 420 basis points. In fact, this division also incurred an operating loss in the quarter under review.

Outlook

Nokia officially took control of rival Alcatel-Lucent (PA:ALUA) in January 2016. It continues to expect annual cost savings of €1.2 billion for 2018, excluding Nokia Technologies.

For 2018, capital expenditure outlook for this Zacks Rank #4 (Sell) company is approximately €700 million. The figure is expected to be around €600 million, over the long term. Non-IFRS tax rate is expected to be roughly 30% in the current year and 25% over the longer term.

The company anticipates net sales in its primary networks division to decline in the current year, which is in line with the primary addressable market. However, rate of decline in this key segment is projected to be lower than that expected previously, mainly due to “early signs of improved conditions in North America”.

Rollouts of next-generation 5G networks are anticipated to improve market conditions significantly in 2019 and 2020. In fact, Nokia’s Networks division is expected to grow faster than the primary addressable market over the long term.

Additionally, segmental operating margin is expected between 6% and 9% for 2018. The measure is projected in the 9% to 12% range for 2020.

Zacks Rank & Stocks to Consider

Nokia carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Wireless Equipment sector are Motorola Solutions (NYSE:MSI) and Harris Corporation (NYSE:HRS) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Motorola and Harris have increased 9.8% and 16.2%, respectively, in the past three months.

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