Ericsson beats forecasts in Q2 after Networks unit improves

Sweden-based Ericsson reported sales and operating profits that were ahead of analyst forecasts for the second quarter of 2015 as the vendor's Networks business improved.

Excluding restructuring charges, operating income increased by 49 per cent year-on-year to SEK6.3 billion (€675 million/$736 million), while the operating margin in the Networks segment recovered from the weak first quarter, rising to 8 per cent in the second quarter from 2 per cent in Q1 2015. Including charges, the operating income was 11 per cent lower at SEK3.6 billion, which was above a forecast of SEK2.8 billion in a Reuters poll of analysts.

Ericsson said the operating income was lower primarily due to the higher restructuring charges of SEK2.7 billion associated with the global cost and efficiency programme, which is targeting savings of about SEK9 billion during 2017 compared to 2014. This programme has led to the reduction of 2,100 positions in Sweden, with some 1,700 employees leaving the company. Savings related to these activities will start to impact results towards the end of this year, Ericsson added.

As a result of the fall in operating income, net income was down by 20 per cent year-on-year at SEK2.1 billion, although compared to the first quarter of this year net income grew by 46 per cent. The gross margin was lower at 33.2 per cent (from 36.4 per cent in Q2 2014), weighed down by the restructuring charges.

Reported Q2 sales increased by 11 per cent to SEK60.7 billion year-on-year in the period from April to June, although on an adjusted basis sales decreased by 6 per cent. This was above a Reuters forecast of SEK58.6 billion as well as an SEK58.9 billion average of estimates compiled by Bloomberg, which also noted that Ericsson saw its biggest share price jump in a year following the results.

Sales were boosted by an improvement in the company's Networks business, which reported an 18 per cent sequential rise in Q2 revenue, in part thanks to stabilised mobile broadband sales in North America as well as higher network spending by Asian and European mobile operators.

Nevertheless, sales in North America were still at a lower level than a year ago. In addition, sales declined in Japan, parts of Latin America and Russia. Ericsson noted that this was partly offset by a continued fast pace of 4G deployments in Mainland China. Sales growth was also strong in the Middle East, India and South East Asia.

In Northern Europe and Central Asia, sales declined year-on-year primarily due to slower mobile broadband investments in Russia. The vendor noted that Professional Services showed good momentum here, and Support Solutions continued to develop favourably.

In Western and Central Europe, sales increased on an annual basis thanks to improvements in Global Services, continued mobile broadband deployments and investments in network quality.

Commenting on the results, CEO and president Hans Vestberg said the continuing consolidation trend among both vendors and operators was creating opportunities and challenges.

"Therefore we have, during the first half of 2015, accelerated our transformation journey towards becoming a true ICT company. With our ongoing strategic initiatives we are well positioned to continue to create value for our customers in a transforming market," Vestberg said.

For more:
- see this Ericsson Q2 results presentation
- see this Reuters article
- see this Bloomberg article

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Ericsson to be hit by SEK2.5B restructuring costs in Q2
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