Ericsson Gains Premarket After Q2 Print, What's Going On?

Ericsson ERIC reported second-quarter fiscal 2024 results. The stock price climbed after the print.

Sales declined 7% year-over-year to 59.8 billion Swedish Krona. In USD, sales of $5.597 billion beat the analyst consensus estimate of $5.363 billion. The sales decline was due to an 11% decrease in Networks.

Group organic sales declined by 7% Y/Y. Organic sales were stable in Cloud Software and Services and Enterprise.

Adjusted gross margin improved to 43.9% from 38.3% Y/Y, driven primarily by improved gross margin in Networks.

Adjusted EBIT margin was (19.9)% versus 4.4% Y/Y due to a non-cash impairment loss relating to the Vonage acquisition. Adjusted EBITA margin improved to 6.8% from 5.7% a year ago.

Ericsson reported an EPS loss of SEK (3.34) versus SEK (0.21) Y/Y. In USD, EPS of $0.01 missed the analyst consensus estimate of $0.05. 

Free cash flow before M&A was SEK 7.595 billion in the quarter, benefiting from the operational improvements.

As of June 30, 2024, net cash stood at SEK 28.7 billion. 

Ericsson is taking further actions to address the ongoing challenges in the declining telecom equipment market, Bloomberg cites CFO Lars Sandstrom. In a Bloomberg interview, Sandstrom emphasized that a significant portion of the company’s cost base is connected to personnel, and adjustments may be necessary moving forward.

Ericsson and its Nordic competitor Nokia Corp NOK have struggled with a lackluster telecom equipment market for years as the anticipated surge in 5G technology spending did not materialize. Despite this, there are signs that sales will stabilize this year. Ericsson’s $14 billion network deal with US operator AT&T Inc  T will likely start contributing to revenue in the second half of the year.

The prolonged downturn led Ericsson to cut approximately 8% of its workforce, or 8,500 employees, last year to reduce expenses. In March, the company announced the elimination of 1,200 jobs in Sweden. CEO Börje Ekholm acknowledged the challenging market conditions due to the slow pace of investments in India but anticipated benefits from North American contract deliveries in the latter half of the year.

Outlook: Ericsson expects a third-quarter adjusted gross margin of 45-47% and restructuring charges of SEK 3.0-4.0 billion in 2024.

Price Action: ERIC shares are up 2.97% at $6.58 premarket at the last check Friday.

Photo by Mats Wiklund via Shutterstock