(Bloomberg) — Nokia Oyj reported better-than-expected earnings, fueled by strong demand for 5G gear from phone carriers and gains from its restructuring strategy.
The company kept its earnings guidance intact, however pointing to “a strong order back log” and that it could have grown faster without the supply chain constraints.
“We see improvements here and there with different suppliers, but the big picture is that it continues to be tight,” Lundmark said in an interview.
Nokia share rose as much as 4.23% in early trading Thursday.
The Finnish maker of mobile networks had earlier flagged a provision of about 100 million euros ($106 million) related to a decision to exit the Russian market in response to the country’s invasion of Ukraine.
- The company reported adjusted operating profit of 583 million euros ($612 million), beating an average analyst estimate of 501 million euros.
- The adjusted operating margin was 10.9%, compared to a 9.8% average estimate. Sales reached 5.35 billion euros, above the 5.27 billion euros predicted by analysts.
- Network Infrastructure grew 9% in constant currency, driven by strong demand in both Fixed and Submarine Networks while Cloud and Network Services also performed well growing 5% in constant currency with strength in Core Networks.
- The company kept its guidance for the full year unchanged, making only a currency adjustment to its top line forecast, now expecting net sales of 22.9 billion euros to 24.1 billion euros and a comparable operating margin of 11-13.5%.
- It also kept its long-term target of growing revenues “faster than the market” and reaching a comparable operating margin of at least 14% in three to five years.
- In Nokia’s largest unit Mobile Networks, supply constraints hindered revenue growth, but the company expects to return to growth this year.
Key Insights
- Chief Executive Officer Pekka Lundmark said “the demand environment remains strong and while supply chain and inflation challenges remain, we are confident we can deliver our 2022 outlook and continue to make good progress towards our long-term targets.”
- Lundmark pointed to Covid-related lock downs, especially in the Shanghai region “that increases the short uncertainty to the supply chains overall. But these concerns do not affect our view on the full year 2022,” he said.
- Lundmark, 58, began his efforts to turn the company around in mid-2020. He has been focusing on restructuring the business while cutting jobs and adding resources to product development. After the previous quarter, he said Nokia had moved into the “accelerate phase” of its strategy, with the aim to boost growth and margin expansion.
- The decision to withdraw from Russia, a key event of the quarter, will only have a marginal effect on the company’s earnings as the market counted for less than 2% of Nokia’s sales last year. Its Swedish rival Ericsson AB, which also in April suspended business in Russia “indefinitely,” has recently faced headwinds over alleged corruption in Iraq and related probes.
- Analyst Daniel Djurberg at Handelsbanken said the report was “strong overall” highlighting a “stellar performance” in the mobile networks unit.
Market Context
- Nokia shares have gained about 37% in the past year.
- 20 analysts tracked by Bloomberg recommend buying the stock, 11 had a “hold” recommendation and 1 is telling clients to sell.
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- Statement
(Adds comments from CEO Pekka Lundmark)
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