NOK Q3 Earnings Match Estimates, Guidance Cut Amid Soft Sales Recovery

Nokia Corporation NOK reported mixed third-quarter 2024 results, with the top line missing the Zacks Consensus Estimate but the bottom line matching the same. The company reported a top-line contraction year over year, primarily due to weakness in the Mobile Networks segment and disinvestment in Cloud and Network Services. Despite strong order intake in the Network Infrastructure segment, slow sales revival remains a concern.

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Management’s cost reduction initiatives, favorable product, and regional mix improved the gross margin. Strong growth in free cash flow is a tailwind.

Net Income

Nokia reported a net income of €175 million ($192 million) or €0.03 (3 cents) per share in the third quarter compared with an income of €133 million or €0.02 per share in the year-ago quarter. Cost reduction efforts and higher interest income boosted the net income.

Comparable profit was €358 million ($393 million) or €0.06 (7 cents) per share, up from €293 million or €0.05 per share in the year-earlier quarter. The bottom line matched the Zacks Consensus Estimate of 7 cents.

Revenues

Quarterly net sales stood at €4.32 billion ($4.75 billion), down 8% from €4.7 billion in the year-ago quarter. Demand softness in multiple segments hindered the top line. Revenues fell short of the Zacks Consensus Estimate of $5.09 billion.

Segment Results

Net sales from Network Infrastructure totaled €1.52 billion ($1.67 billion), down from €1.53 billion in the year-ago quarter. The top line missed our revenue estimate of €1.87 billion. At cc, IP Networks recorded 6% growth year over year, owing to strength in the North America region. Revenues from Optical Networks decreased 15% year over year on a cc basis. Optical Networks continue to witness a slow market recovery compared to the rest of the Network Infrastructure markets. Fixed Networks witnessed a 9% increase year over year at cc, driven by growing investment in broadband access in North America. 

Mobile Networks generated revenues of €1.74 billion ($1.91 billion), down 19% year over year on a reported basis and 17% at cc. Net sales missed our estimate of €1.86 billion. A decrease in the 5G deployments in India and demand softness in North America hindered the top line in this segment. 

Net sales from Cloud and Network Services were €702 million ($771 million), down 5% year over year on a reported basis and 4% on a cc basis. Divestiture of Device Management and Service Management Platform business affected revenues in this segment. The top line in this segment missed our revenue estimate of €789.3 million.

Nokia Technologies contributed €352 million ($387 million) compared with €258 million in the year-ago quarter. Net sales increased 36% on a reported basis and 35% at cc. The uptick was mainly driven by renewals of previously signed smartphone licensing agreements. The top line also benefited from positive trends in the automotive and IoT space.

Region-wise, net sales from the EMEA region marginally declined to €1.832 billion from €1.835 billion in the year-earlier quarter. The downtrend in the Network Infrastructure was largely reversed by stable sales in the Mobile Networks, Cloud and Network Services. Revenues in the APAC region declined to €1.06 billion, down 21% at cc year over year. Sales decreased 43% at cc in India due to a decline in 5G deployments.

Americas witnessed a 3% decline at cc to €1.43 billion. Strong growth in IP Networks and Fixed Networks in the Network Infrastructure segment was offset by weakness in the Mobile Networks, Cloud and Network Services segments.

Other Details

In the September quarter, the comparable gross margin increased to 45.7% from 40.8% in the year-ago quarter. Strong contribution from all segments and a favorable regional mix boosted the gross margin. The comparable operating profit increased 9% year over year to €454 million ($499 million). Comparable operating margin improved to 10.5% from 8.9%, owing to lower net sales and higher operating expenses.

Cash Flow and Liquidity

Nokia generated €728 million ($526 million) net cash for operating activities in the third quarter of 2024. As of Sept. 30, 2024, the company had €7.04 billion ($7.86 billion) in cash and cash equivalents, with long-term interest-bearing liabilities of €2.79 billion ($3.11 billion).

Guidance Down

For 2024, Nokia expects a comparable operating margin in the range of €2.3-€2.9 billion. Free cash flow is estimated within 30-60% of comparable operating profit. Capital expenditure is estimated to be €450 million.

Despite the signal of market recovery and growing order intake in North America, management’s downgraded fiscal 2024 sales growth projection for several segments owing to the persistence of market uncertainty.

For 2024, management expects revenues in the Network Infrastructure segment in the range of -6% to -3% year over year, down from -2% to +3% growth expected earlier. Mobile Networks estimated sales decline worsened to 22% to 19% year over year from the previous estimation of 19% to 14%. Revenue projection for Cloud and Network Services was revised to -7% to -4% from -5% to 0%.

NOK’s Zacks Rank & Other Stocks to Consider

Nokia currently carries a Zacks Rank #2 (Buy).

Here are some other top-ranked stocks that investors may consider.

Zillow Group, Inc. ZG sports a Zacks Rank #1 (Strong Buy) at present. In the last reported quarter, it delivered an earnings surprise of 25.81%. You can see the complete list of today’s Zacks #1 Rank stocks here.

ZG delivered an earnings surprise of 37.41%, on average, in the trailing four quarters. The company is witnessing solid momentum in rental revenues, driven by growth in both multi and single-family listings, which is a positive factor. 

Ubiquiti Inc. UI sports a Zacks Rank of 1 at present. The company offers a comprehensive portfolio of networking products and solutions for service providers and enterprises.

Its excellent global business model, which is flexible and adaptable to evolving changes in markets, helps it to beat challenges and maximize growth. The company’s effective management of its strong global network of more than 100 distributors and master resellers improved its UI’s visibility for future demand and inventory management techniques.

Workday Inc. WDAY sports a Zacks Rank of 1 at present. In the last reported quarter, it delivered an earnings surprise of 7.36%.
 
WDAY is a leading provider of enterprise-level software solutions for financial management and human resource domains. The company’s cloud-based platform combines finance and HR in a single system that makes the process easier for organizations to provide analytical insights and decision support.

Note: €1 = $1.09893 (period average from July 1, 2024, to Sept. 30, 2024)
         €1 = $1.11602 (as of Sept. 30, 2024)

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