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Ericsson Stock Down On Weak Q4 Profit, Q1 EBITA Warning

ericsson jan20 lt

Shares of LM Ericsson were losing around 7 percent in the early morning trading in Sweden after the telecom major reported Friday weak profit in its fourth quarter, hurt by hefty charges, despite higher revenues.

Looking ahead, the company said it expects first-quarter Group EBITA to be somewhat lower than last year, with improvements during the year.

Declining margins in Networks are expected during the first half of 2023 due to changing business mix. Ericsson also said it expects to start seeing the effect of its 9 billion kronor cost savings activities during the second quarter of 2023.

Over the coming 18-24 months, the company projects significant IPR revenue growth.

Over the long term, the firm said it has full confidence and is on track to deliver on EBITA target of 15-18 percent by 2024.

The company also announced a dividend for 2022 of 2.70 kronor per share, higher than 2.50 kronor last year, which will be proposed to the AGM by the Board of Directors.

Borje Ekholm, President and CEO of Ericsson, said, ".. there are near-term uncertainties, however, we are still in the early phase of global 5G rollout and widespread enterprise digitalization... We remain positive on the long-term outlook for our business. ...Given near-term macroeconomic headwinds, we expect Enterprise to grow somewhat slower than during 2022."

In the fourth quarter, the positive impact from higher IPR revenues was offset by expected business mix shift and previously announced charges.

Net income declined 39 percent to 6.2 billion Swedish kronor from last year's 10.1 billion kronor. Earnings per share were 1.82 kronor, down 40 percent from 3.02 kronor a year ago.

EBITA dropped 27 percent to 9.0 billion kronor, and EBITA margin fell to 10.5 percent from last year's 17.2 percent. Adjusted EBITA fell 27 percent from last year to 9.3 billion kronor, and adjusted EBITA margin dropped to 10.8 percent from 17.9 percent a year ago.

The results reflected previously announced charges of 4.0 billion kronor, including DOJ provision, IoT divestment and Cloud Software and Services contract and portfolio exits.

Ericsson said it booked a 2.3 billion kronor or $220 million provision in this quarter as it is trying to reach a resolution with the US authorities regarding the previously announced Deferred Prosecution Agreement or DPA breach notices.

Gross income increased from last year, while gross margin decreased to 41.4 percent from prior year's 43.2 percent.

Net sales for the quarter grew 21 percent to 86.0 billion kronor from prior year's 71.3 kronor. In this, Vonage contributed 4.1 billion kronor.

Group organic sales grew 1 percent from last year, of which IPR revenues contributed with 5 percentage points.

In fiscal 2022, net income declined 17 percent from last year to 19.1 billion kronor or 5.62 kronor per share, while net sales grew 17 percent to 271.5 billion kronor. Group organic sales grew by 3 percent.

In Sweden, Ericsson shares were trading at 57.36 kronor, down 7.35 percent.

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