Ericsson Shares Sink on Disappointing Guidance — Update

By Dominic Chopping

STOCKHOLM--Ericsson on Friday posted disappointing third-quarter guidance that missed analyst expectations, sending shares as much as 11% lower.

The Swedish telecommunications-equipment company said it expects similar market mix and trends for the July-to-September period as in 2Q, including a demand slump in North America, and guided for an adjusted earnings before interest, taxes and amortization margin in line with or slightly higher than the 5.7% achieved in 2Q, followed by a seasonally stronger 4Q.

This was lower than expected, with Kepler Cheuvreux analyst Sebastien Sztabowicz saying in a note that consensus had seen an Ebita margin of around 9.9% in 3Q.

Ericsson remains confident the market will recover, as rapid data-traffic growth necessitates more network spending and inventory levels at operators are reduced. Although the exact timing of increased network investments is uncertain, it expects a gradual recovery in late 2023 and improvement in 2024.

In the second quarter, sales in its key networks unit fell 8% on the year, with strong sales mainly in India only partially offsetting a 50% sales drop in North America, where customers have cut spending and reduced inventory after high investment levels in 2021 and 2022.

The company reported a net loss attributable to shareholders of 686 million Swedish kronor ($67.2 million) compared with a profit of SEK4.5 billion a year earlier, as sales rose 3% to SEK64.44 billion.

Analysts polled by FactSet had expected a net loss of SEK1.27 billion on sales of SEK63.94 billion.

Earnings were weighed by restructuring charges of SEK3.1 billion in the quarter, mainly from redundancy expenses that are part of its continuing cost cutting, while an intellectual-property deal helped support profits.

"Based on the expected recovery of the mobile networks market towards the end of the year, we remain focused on reaching the lower end of the 15%-18% Ebita margin long-term target range in 2024," Chief Executive Borje Ekholm said in a statement.

At 1330 GMT, shares traded 10% lower at SEK52.62.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

July 14, 2023 10:01 ET (14:01 GMT)

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