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Nokia (NOK) Q4 Earnings and Revenues Beat Estimates, Up Y/Y

Nokia Corporation NOK reported better-than-expected fourth-quarter 2018 results, wherein both the bottom line and top line beat the Zacks Consensus Estimate.

Net Income

Reported profit for the fourth quarter was €193 million ($220.2 million) or €0.03 (4 cents) per share against loss of €386 million or loss of €0.07 per share in the prior-year quarter, driven by lower income tax expenses and higher gross profit. For full-year 2018, reported loss was €340 million or loss of €0.10 per share compared with loss of €1,494 million or loss of €0.26 per share a year ago.

Non-IFRS profit improved 2.7% year over year to €728 million ($830.6 million) or €0.13 (15 cents) per share, beating the Zacks Consensus Estimate by 1 cent.

Nokia Corporation Price, Consensus and EPS Surprise


On a reported basis, net sales for the fourth quarter increased 3.3% year over year to €6,869 million ($7,837.4 million), driven by strong 5G customer engagement in all key markets, particularly solid performance in Nokia Software and enterprise business. For full-year 2018, reported net sales decreased 2.5% year over year to €22,563 million.

Quarterly non-IFRS net sales increased 3.1% to €6,872 million ($7,839 million), beating the Zacks Consensus Estimate of $7,613 million.

Other Quarter Details

Non-IFRS gross profit increased 5.5% year over year to €2,915 million. Non-IFRS operating profit rose 11.6% to €1,120 million with margin up 120 basis points (bps) to 16.3%.

Segmental Performance

In Nokia's Networks business, net sales increased 6.7% year over year to €6,215 million ($7,091.2 million). While net sales improved in Asia-Pacific, Latin America and North America (up 5%, 7% and 21%, respectively), it declined in Greater China and Middle East & Africa (down 5% and 4%, respectively). Europe’s revenues were almost stable year over year. The segment’s gross margin improved 210 bps to 39.7%. Operating margin increased 240 bps to 13.5% owing to higher gross profit. Net sales in Ultra Broadband Networks improved 7% to €2,654 million, primarily due to Mobile Networks, which benefited from growth in radio networks and small cells. Net sales in Global Services increased 7% to €1,765 million driven by network implementation, systems integration and managed services. Net sales in IP Networks and Applications improved 5% to €1,795 million owing to both Nokia Software and IP/Optical Networks. The increase in IP/Optical Networks net sales was due to IP routing, reflecting strong uptake of Nokia’s market
leading FP4 portfolio.

Net sales in Nokia Technologies were down 23.6% year over year to €423 million ($482.6 million) primarily due to lower one-time net sales. While the segment’s gross margin improved 470 bps to 99.3%, its operating margin expanded 1,180 bps to 82%.

In Group Common and Other, net sales decreased 15.6% year over year to €255 million ($291 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 11.8%, down 310 bps.

Cash Flow and Liquidity

For full-year 2018, Nokia generated €360 million of cash from operations compared with €1,811 million a year ago. As of Dec 31, 2018, the technology company had cash and cash equivalents of €6,261 million ($7,165 million) while its long-term interest-bearing liabilities were €2,828 million ($3,236.3 million).

In the fourth quarter, the company’s net cash and current financial investments decreased 32% year over year to €3,051 million.

2019 Guidance

Nokia has provided guidance for full-year 2019 and expects non-IFRS operating margin to be between 9% and 12%. While non-IFRS earnings per share are expected in the range of €0.25-€0.29, non-IFRS income tax rate is anticipated to be approximately 28%. Capital expenditures are likely to be around €700 million.

Moving Forward

Nokia continues to execute its strategy with particularly good progress in Nokia Software and expansion to select enterprise vertical markets. The company 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 and Stocks to Consider

Nokia currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Comtech Telecommunications Corp. CMTL, Harris Corporation HRS and PCTEL, Inc. PCTI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.          

Comtech has a long-term earnings growth expectation of 5%.

Harris currently has a forward P/E (F1) of 19.8x.

PCTEL currently has a forward P/E (F1) of 66.4x.

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