Ericsson (NASDAQ: ERIC) beat profit and sales forecasts on Friday after a demand pick-up in North America raised hopes of a recovery from broader market weakness, sending its shares to their highest since October 2022.
The telecom equipment maker and its rival Nokia have shed thousands of jobs and cut costs as customers buy less 5G telecom equipment. But both companies were more upbeat in April, forecasting that demand would gradually improve towards the year-end.
“We expect market conditions to remain challenging this year as the pace of India investments slows. However, our sales will benefit during the second half from contract deliveries in North America,” CEO Börje Ekholm said.
Adjusted core earnings (EBITA) halved to 4.05 billion crowns from 8.21 billion crowns a year ago but was 9.5% above a consensus estimate cited by J.P. Morgan. That was largely thanks to a 14% rise in sales in North America.
An improved adjusted gross margin also helped, increasing to 43.9% from 38.3% a year earlier as sales shifted towards the higher margin U.S. market.
Ericsson is benefiting in North America after winning a major contract over Nokia to supply equipment to mobile operator AT&T.
CFO Lars Sandström told Reuters the second quarter in North America was boosted by several customers, but he did not name them. The company’s statement referenced “larger customers” in the network’s business unit.
Ericsson’s shares pared some gains and were up 5% by 0920 GMT after touching around 74 crowns, their highest since October 2022.
Paolo Pescatore, analyst at PP Foresight, said the results were “encouraging” in tough market conditions, while Jefferies said it expected sales and gross margin to improve in the second half, helped by the AT&T deal.
Inderes analysts said growing volumes in the North American Networks business are raising hopes that big operators there will start investing again towards the end of the year.
Ericsson’s sales fell 7% to 59.9 billion crowns, beating forecasts.
($1 = 10.5104 Swedish crowns)
(Source: Reuters)
