Ericsson (NASDAQ: ERIC) stock rose 2% in intraday trading Tuesday after the company reported stronger-than-expected first-quarter earnings.
Swedish networking and telecommunications giant Ericsson (ERIC) has reported earnings per share (EPS) of SEK0.77, beating consensus estimates of SEK0.33. However, revenue for the quarter fell slightly short of expectations, coming in at SEK53.3B compared to the projected SEK55B.
The company saw a significant improvement in its gross margin, excluding restructuring charges, reaching 42.7%, up from 39.8% and outperforming the consensus estimate of 40%.
Ericsson attributes this uptick to several factors, including a competitive product lineup, effective cost management strategies, enhanced commercial discipline, and increased revenue from intellectual property rights (IPR) licensing. The unadjusted gross margin also showed improvement at 42.5%, compared to 38.6%.
Looking forward, Ericsson forecasts sales stabilization in the latter half of the year, driven by recent contract acquisitions and the normalization of customer inventory levels, particularly in North America. For the second quarter, the company expects the gross margin of its Networks segment, excluding restructuring charges, to range between 42% and 44%.
Commenting on the earnings report, analysts from Jefferies emphasize that the market will likely focus more on the impressive margin improvements rather than the temporary sales weakness.
They said in a note,
“While the current sales weakness is a concern, we expect the market to be focused on the strong gross margin trend through the year and stabilizing sales in H2.”
On the other hand, analysts at Morgan Stanley highlighted a revenue decline in Southeast Asia, Oceania, and India regions, with a notable 42% slump.
They noted,
“This was primarily due to a reduction in capex investments in India, after record-high investment levels in 2023, as well as a YoY decrease in the Philippines and Malaysia due to timing of project milestones in Q1 2023.”
Ericsson (NASDAQ: ERIC) Stock Reaction
At the time of publication, ERIC stock has increased by 1.88% compared to the previous trading session, trading at $4.88. The traders have exchanged hands with 59,007,804 (59 million) shares versus the average daily trading volume of 17.87 million.
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