Stockholm, Sweden – By Dominic Chopping
Introduction
Net Profit Projection
According to a consensus provided by FactSet, industry experts anticipate that Ericsson will post a net profit of 3.29 billion Swedish kronor ($314.3 million) for the fourth quarter. This figure marks a decrease from last year’s profit of SEK6.07 billion.
Sales Outlook
FactSet’s sales forecast for Ericsson predicts an 11% decrease in revenue, with sales expected to amount to SEK76.64 billion for the quarter. In comparison, the company generated SEK85.98 billion in sales during the same period last year.
Key Focus Areas
As we await Ericsson’s fourth-quarter earnings report, there are several crucial factors worth observing:
- Profitability: Analysts will closely analyze Ericsson’s net profit margin to gauge the company’s overall financial performance.
- Sales Decline: The anticipated decline in sales sparks curiosity about the factors impacting Ericsson’s revenue generation.
- Network Deal Impact: The recent multi-billion dollar network deal with AT&T has undoubtedly played a significant role in influencing the company’s stock price. Key insights into the impact of this deal will shed light on how it has contributed to Ericsson’s financial standing.
- Industry Trends: As a prominent player in the telecommunications sector, Ericsson’s performance may also reflect broader industry trends. A comprehensive examination of the company’s earnings report can offer valuable insights into the current state of the telecom market.
As Ericsson prepares to release its fourth-quarter earnings report, market analysts and investors eagerly await the unveiling of these crucial financial figures.
Weak 4Q Seasonality for Ericsson
Ericsson, a leading network equipment supplier, is expected to face a weak fourth quarter seasonality. This is mainly due to flattening sales growth in India, which had previously been a key driver of growth for the company. Additionally, ongoing inventory adjustments at key customers and lower-than-anticipated spending on radio access network equipment in major markets such as the U.S. are contributing factors.
According to Sandeep Deshpande at JPMorgan, although there have been some positive developments such as market share gains from the recently announced AT&T deal and the benefits of restructuring, there are few reasons to be optimistic about the company’s stock. There is a potential risk of revenue downgrades, and historical evidence suggests that restructuring efforts may not always result in the desired upside when revenue growth disappoints.
Margin Challenges and Expectations
JPMorgan predicts that Ericsson will experience a gross margin of 39.2% in the fourth quarter. The shifting business mix, driven by large deployments in India, will continue to be a margin headwind for the network business. However, ongoing efforts in restructuring are expected to positively impact the margins of the cloud software and services business.
The estimate for the fourth quarter’s earnings before interest, tax, and amortization (EBITA) margin from JPMorgan aligns with consensus and company guidance at 10.1%.
Outlook: Ericsson’s Revised Ebita Margin Target
Ericsson acknowledges the ongoing macroeconomic uncertainty, which is anticipated to extend into 2024. Consequently, the investment ability of Ericsson’s customers is expected to be significantly affected. As a response to this, during the third quarter of 2023, Ericsson decided to discontinue its long-standing projection of reaching the lower end of its 15%-18% Ebita margin target by 2024. However, it reaffirms its commitment to achieving this target as swiftly as possible, contingent upon the recovery of its more lucrative markets. In line with these projections, Ericsson foresees similar market trends in the fourth quarter as witnessed during the preceding quarter.