Shares of LM Ericsson were losing around 6 percent in the morning trading in Sweden as well as around 4 percent in pre-market activity on Nasdaq after the telecom major reported Tuesday weak profit in its first quarter amid flat organic sales, while total sales increased in double-digit rates. Ericsson added that it is on track to reach the lower end of the long term EBITA target range of 15-18 percent by 2024.
Looking ahead for the second quarter, Ericsson projects Group EBITA margin to reach mid-single-digit level. The company expects a gradual recovery in the second half of 2023.
Börje Ekholm, President and CEO of Ericsson, said, “We are driving our transformation to a platform company with a focus on creating a stronger and more profitable Ericsson with a larger addressable market. With the expected recovery by 2024 of the Mobile Networks market, the turnaround of Cloud Software and Services, portfolio adjustments, enhanced R&D productivity, increased IPR revenues and cost reductions, we are on track to reaching the lower end of the long-term EBITA target range of 15-18 percent by 2024.”
Ericsson further said it has accelerated its cost-out execution and identified additional savings opportunities of 2 billion kronor. The company now plans to reduce cost run rate by 11 billion kronor by year-end. The company expects restructuring charges may amount to around 7 billion kronor for the full year, of which more than half is likely to be booked in the second quarter.
For the first quarter, net income declined 46 percent to 1.6 billion Swedish kronor from 2.9 billion kronor in the prior year. Earnings per share fell 49 percent to 0.45 kronor from 0.88 kronor last year.
EBITA dropped 22 percent from last year to 3.8 billion kronor, and EBITA margin dropped to 6.2 percent from last year’s 9.0 percent.
EBITA excluding restructuring charges amounted to 4.8 billion kronor, down 3 percent from 5.0 billion kronor a year ago. EBITA margin excluding restructuring charges was 7.7 percent compared to 9.1 percent.
First-quarter Group sales increased 14 percent to 62.6 billion kronor from 55.1 billion kronor last year. Sequentially, net sales fell 27 percent from the preceding fourth quarter.
In the first-quarter, sales adjusted for comparable units and currency were unchanged. Group organic sales were flat, as the expected decline in Networks was offset by growth in other business segments, including a 19 percent organic growth in Enterprise.
Segment Networks organic sales declined 2 percent, driven by lower operator capex and inventory optimization among multiple customers. Customers in early 5G markets have somewhat slowed the deployment pace.
Ericsson noted that cash flow was negative in the first quarter impacted by an increase in working capital. Net cash on March 31, 2023, was 13.6 billion kronor compared with 23.3 billion kronor on December 31, 2022.
In Sweden, Ericsson shares were trading at 58.97 kronor, down 5.5 percent.
In pre-market activity on Nasdaq, the shares were losing around 3.6 percent to trade at $5.71.
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