Net Profit Forecast
Sweden’s telecom-equipment maker, Ericsson, is set to announce its second-quarter earnings on Friday. According to a consensus provided by FactSet, the company is expected to report a net loss of 1.27 billion Swedish kronor ($122.3 million), compared to a profit of SEK4.65 billion in the same period last year.
Revenue Forecast
Analysts anticipate a 2.4% increase in sales, with revenue projected to reach SEK63.94 billion, up from SEK62.47 billion a year ago.
Key Focus Areas
Networks
Ericsson expects second-quarter sales in its networks unit to be similar to the first quarter, amounting to around SEK42.5 billion. The company has acknowledged that customers in early 5G markets have slowed down their deployment process, and some also reduced their inventory levels. While the inventory adjustment is expected to be mostly completed in Q2, it may spill over into the third quarter.
Citi analyst Andrew M. Gardiner stated, “Both results and outlook depend on the interplay between the continued strength in India 5G deployments and the inventory workdown and demand recovery in the U.S. We expect the inventory clearance to be largely complete, but the slope of recovery in 2H 2023 is the key question.”
Stay tuned for Ericsson’s second-quarter earnings report for further updates on its financial performance.
Ericsson’s Outlook for Second Quarter
In the second quarter, Ericsson is expecting a mid-single-digit level of earnings before interest, tax, and amortization (Ebita) margin, excluding restructuring. This marks a significant decrease compared to the same period last year when the Ebita margin was 12%. Jyske Bank predicts a 5.1% Ebita margin for Ericsson during this quarter, according to analyst Anders Haulund Vollesen.
For the networks unit, Ericsson anticipates a gross margin between 37% and 39%, aligning with Jyske Bank’s forecast of 38%. The first half of 2023 is likely to be the low point for Ericsson and the networks segment’s margins. However, a clear recovery is expected in the second half. Looking ahead to 2023, Ericsson aims for an Ebita margin of 16.6% in the networks segment (excluding restructuring costs), down from 20.1% in 2022.
Citi’s expectations for Ericsson’s third-quarter networks gross margin differ slightly, with a predicted margin of 39% compared to the Visible Alpha consensus of 40%. Consensus for the group Ebita margin is at 10%, while Citi forecasts a slightly lower 9%. Citi notes that if Ericsson’s guidance aligns with their below-consensus forecasts, it should not be considered a significant miss but rather a cautious approach by the company.
In terms of cost-saving measures, Ericsson has identified an additional SEK2 billion in opportunities, which brings its total cost-saving target to SEK11 billion. At the same time, the company expects restructuring charges of around SEK7 billion for this year, with more than half likely to be booked in the second quarter. Ericsson remains committed to reaching the low end of its targeted Ebita margin range of 15%-18% by 2024.
