Ericsson shares rise as Q1 report reveals strong earnings, gross margin beat

Shares of Ericsson (NASDAQ: ERIC) popped more than 6% in Stockholm on Tuesday after the company reported better-than-expected earnings for the fiscal Q1 2024.

The Swedish networking and telecommunications company posted earnings per share (EPS) of SEK0.77, topping the consensus estimates of SEK0.33. Revenue in the quarter came in at SEK53.3 billion, slightly below the projected SEK55 billion.

The company saw its gross margin, excluding restructuring charges, improve to 42.7%, up from 39.8%, and well above the consensus projection of 40%.

Ericsson said the uptick was driven by a competitive product lineup, cost management strategies, stronger commercial discipline, and increased IPR licensing revenues.

The unadjusted gross margin stood at 42.5%, compared to 38.6% previously.

Looking ahead, Ericsson anticipates sales stabilization in the latter half of the year, fueled by recent contract acquisitions and the normalization of customer inventory levels in North America.

For the second quarter, the company expects the Networks segment's gross margin, excluding restructuring charges, to range between 42% and 44%.

Commenting on the report, Jefferies analysts led by Janardan Menon believe the market will pay more attention to margin improvements rather than lackluster sales.

“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,” they said in a note.

Morgan Stanley analysts said the revenue decline was most obvious in Southeast Asia, Oceania, and India regions, with a 42% slump.

“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,” they noted.

By Vahid Karaahmetovic

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