Ericsson (ERIC) reported non-IFRS earnings per share (excluding restructuring) of SEK 1.71 (23 cents) in the fourth quarter of 2014, falling short of the Zacks Consensus Estimate of 25 cents. Also, earnings marked a decline of 29.3% year over year from the prior-year figure of SEK 2.42. Following the earnings release, Ericsson‘s shares declined about 2.3% during the trading session on Jan 27.
The results were affected by the reduced business activity in the North American region owing to lower operator investments. This apart, higher operating expenses and adverse impact from hedge contracts continued to weigh on the company’s earnings.
Also, for full year 2014, Ericsson’s non-IFRS earnings per share (excluding restructuring) came in SEK 4.80 (70 cents), which declined 14.6% from SEK 5.62 a year ago.
Inside the Headlines
In the fourth quarter of 2014, revenues rose 1% year over year to SEK 68 billion ($9157.7 million). However, it missed the Zacks Consensus Estimate of $9,551 million. For the full year, Ericsson reported revenues of SEK 228 billion ($33.3 billion), which remained flat on a year-over-year basis.
Sales were driven by notable growth in regions like the Middle East, Asia and Europe. However, continued sluggish performance in the North America region proved to be the dampener.
As per the segments, fourth quarter revenues in Networks segment dipped 1.9% year over year to SEK 34.1 billion ($4.6 billion). Also, Support Solutions segment revenues for the quarter slipped 21.3% year over year to SEK 4.0 billion ($0.5 billion). On the other hand, Global Services segment revenues inched up 9.6% year over year to SEK 29.8 billion ($4.0 billion). Revenues from the Modem segment came in at SEK 90 million ($12.1 million). This is the segment’s first fourth quarter revenue generation, after its integration in Aug 2013.
In the fourth quarter, Ericsson penned 17 new managed services contracts. This includes the company’s pan-India contract (read more: Ericsson Inks First Pan-India Deal, Extends Tie with Reliance).
Ericsson’s gross margin for the fourth quarter was 36.6%, down from 37.1% in the prior-year quarter. Also, the operating margin declined to 9.3% from 13.5% reported in the year-ago quarter.
Liquidity
Cash flow from operating activities during the quarter came in at SEK 8.6 billion ($1.2 billion), compared with SEK 14.6 billion reported in the prior-year period.
Ericsson’s net cash at the quarter-end amounted to SEK 27.6 billion ($3.7 billion), a decline from SEK 37.8 billion in the prior-year quarter.
Dividend
In conjunction with the earnings release, Ericsson proposed a dividend of SEK 3.40 ($3.00) per share for 2014.
In Conclusion
Ericsson again reported dismal earnings hurt by its weak North American business performance, currency hedge contracts losses and escalating operating expenses. However, steady growth in mobile broadband business and Global Services contracts helped tide over to a certain extent.
Ericsson presently has a Zacks Rank #4 (Sell). Some better-ranked wireless equipment stocks worth mentioning include Aviat Networks, Inc. (AVNW), Aruba Networks, Inc. (ARUN) and Polycom, Inc. (PLCM). All hold a Zacks Rank #2 (Buy).
Note: 1 SEK = $0.1347 (period average from Oct 1, 2014 to Dec 31, 2014)
1 SEK = $0.1462 (period average from Jan 1, 2014 to Dec 31, 2014)
One Ericsson ADR corresponds to one Ericsson share.
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