Nokia Corp. (NOK) witnessed mixed estimate revisions after the third quarter earnings announcement on October 18, 2012. The mixed view is based on a welter of conflicting factors. On the positive, Nokia reported better-than-expected results and the launch of its latest Lumia offering with AT&T Inc (T) in November is expected to drive growth. On the other hand, management’s disappointing outlook for the upcoming quarter, despite the crucial holiday season, raises concern.
Third Quarter Recap
On October 18, Nokia reported its third-quarter 2012 financial results. Quarterly net loss was approximately $1,180 million or 33 cents per share compared with a net loss of $189 million or 3 cents per share in the prior-year quarter. However, on an adjusted basis (excluding special items), the loss came in at 9 cents per share, narrower than the Zacks Consensus Estimate of a loss of 12 cents.
Nokia posted quarterly net revenue of approximately $9,057 million, down 19% year over year but above the Zacks Consensus Estimate of $8,890 million. Operating margin in the third quarter was negative 8%, far worse than negative 0.8% in the year-ago quarter. Nokia sold 6.3 million smartphones in the third quarter of 2012 as compared to 56.3 million and 26.9 million smartphones sold by Samsung and Apple, respectively.
Read our full coverage on this earnings report: Nokia Beats, Outlook Grim
Agreement of Estimate Revisions
In the last 7 days, out of total 18 estimates, there were no revisions in either direction for the third quarter of 2012. Similarly, for the fourth quarter out of total 14 estimates, no revisions were witnessed over the same time frame.
Out of total 18 estimates, 9 estimates were revised upward while only two estimates moved in the opposite directions for third quarter over the last one month. For the fourth quarter, 8 out of 14 estimates moved north while only 3 moved south over the same time period.
Over the past one week, out of 24 estimates, only one moved upward while none moved in the opposite direction for 2012. The story is similar for 2013, were only one upward revision was witnessed among 24 estimates over the same time frame.
In the last 30 days, 16 out of 24 estimates were revised upward while 3 estimates moved in the opposite direction for 2012. For 2013, out of 24 estimates, half of the estimates headed north while only three moved south over the same time period.
Magnitude of Estimate Revisions
Over the last 7 days, the current Zacks Consensus Estimate remained flat for the third and fourth quarter of 2012. Over the last 30 days, the current Zacks Consensus Estimate has improved only by a penny to a loss of 5 cents for the third quarter of 2012, while it remained unchanged for the fourth quarter.
Over the last 7 days, the current Zacks Consensus Estimate has remained unchanged for 2012 while it has deteriorated by a penny for 2013. On the contrary, over the last 30 days, the current Zacks Consensus Estimate has improved by 4 cents to a loss of 35 cents for 2012, while it has remained unchanged at 3 cents for 2013.
Our Take
Currently, Nokia is losing market share to Apple Inc.’s (AAPL) iPhone and an array of smartphones that run on Google Inc.’s (GOOG) Android operating system. In spite of teaming up with Microsoft Corporation (MSFT) to develop Windows-based smartphones, the company’s performance was not up to the mark and going forward it might face tough competition from Asian manufacturers – Samsung Electronics Co. and HTC Corp., which have recently come up with their own Windows-based smartphones.
However, we believe Nokia is still a strong brand and possesses a strong portfolio of 30,000 patents and around 10,000 patented innovations in its arsenal. The company is trimming its patent assets to improve its cash position. Furthermore, management has opted for another 10,000 headcount reduction and plans to close down three facilities, which we believe will help the company improve its margins going forward.
We maintain our long-term Neutral recommendation on Nokia Corp. Currently, it retains a Zacks #3 Rank (a short-term Hold rating).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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