Ericsson Beats Q2 Estimates, Reaffirms FY 2020 and 2022 Outlook

Ericsson Beats Q2 Estimates, Reaffirms FY 2020 and 2022 Outlook
July 20, 2020


Shares of Telefonaktiebolaget LM Ericsson (Nasdaq: ERIC), commonly referred to as Ericsson, gained 13.20% or $1.27 to close at $10.89 on Friday following the report of an increase in earnings and sales in the second quarter, with a minimal adverse effect of the COVID-19 pandemic. The company also reaffirmed its FY 2020 and FY 2022 outlook but cautioned that COVID-19 has caused uncertainty in the business.

The Stockholm, Sweden-based company reported second-quarter sales of 55.6 billion kronor, an increase of 1% from 54.8 billion kronor in the comparable quarter last year. The Consensus estimate of FactSet analysts was 55.16 billion kronor. After adjusting for currency fluctuations, adjusted sales were flat on a y-o-y basis. Notably, Networks sales increased 4% from the prior year.

For the quarter ended June, the telecom equipment manufacturer’s net income was 2.60 billion kronor ($253.30 million), up 40% from 1.80 billion kronor in the year-ago period. On a per-share basis, earnings rose 45% to 0.74 kronor ($0.08) in 2Q 2020, from 0.51 kronor in 2Q 2019. Excluding charges, adjusted earnings were $0.10 per share, exceeding Zacks estimate of $0.07 per share.

Operating income was 3.90 billion kronor, compared with 3.70 billion kronor in the previous year. Likewise, the operating margin inched slightly to 6.9%, from 6.8% last year. Adjusted operating income also increased to 4.50 billion kronor ($495.85 million), from 3.90 kronor last year, led by better performance of the Digital Services segment. Analysts polled by Refinitiv had anticipated an adjusted operating income of 3.36 billion kronor for the reported quarter. Adjusted operating margin was 8.2%, compared with 7% in the comparable quarter last year.

Gross margin increased 1% to 37.6% in the second quarter of 2020, from 36.6% in the second quarter of 2019.

Due to an increase in R&D expenses, mainly due to expedited R&D investments, and lower sales, the company anticipates a delay in attaining the FY 2020 objective of low single-digit margin in the Digital Services division. However, the company still expects FY 2022 operating margin in the range of 10% to 12%. Ericsson is also optimistic about the long-term business outlook.

Regarding 5G, President and CEO Börje Ekholm stated that the company would deliver as promised earlier as it has a versatile 5G portfolio and strong balance sheet. Ekholm revealed that the company’s cloud-based products and 5G portfolio are seeing impressive demand. Additionally, Ericsson, a competitor to China’s Huawei Technologies Co Ltd, has received numerous orders from credible tier 1 clients for 5G products and that is expected to generate revenues in 2021 and afterward.

Regarding the importance of 5G, Ekholm said, “As critical national infrastructure, 5G will be a key determinant for long-term competitiveness of the general economy, and act as a stimulant to accelerate economic growth, attract future investments and speed up technology innovation. I believe Europe must prioritize actions to incentivize investments in the digital infrastructure, to include lowering the cost and speeding up the availability of spectrum.”

The impressive quarterly results, reaffirmation of FY 2020 and FY 2021 outlook, and optimism over 5G products portfolio are expected to keep the stock of Ericsson bullish in the short-term.

The historical price chart indicates that the stock has firmly broken the resistance at 9.50 levels. The Chaikin money flow indicator has a positive reading. Additionally, the stock is also trading above its 50-day moving average. Therefore, we are anticipating the stock to remain in an uptrend for the next few days.

eric - technical analysis - 20th July 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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