Ericsson posts increase in profits as higher margins offset falling sales

By Louis Goss

Shares of Ericsson climbed on Tuesday after the Swedish telecom group reported a mixed set of results, with higher profit margins in the first quarter of 2024 helping offset a sharp drop in sales.

Ericsson posted a 14% drop in sales to 53.3 billion kroner ($4.8 billion) in the first three months of 2024, which it blamed on a 19% slump in revenue from its networks segment caused by a slowdown in investment in new mobile infrastructure.

The Stockholm headquartered firm, however, said net income rose 66% to 2.6 billion kroner, as it boosted profit margins to 42.7% from 39.8% in the first quarter of 2023, aided by layoffs and cost-cutting initiatives.

Ericsson's (SE:ERIC.A) Stockholm-listed shares increased 5% on Tuesday having lost 10% of their value in the year-to-date.

The telecoms company said it expects sales will stabilize in the second half of 2024, thanks to "recent contract wins," which analysts said likely refer to the $14 billion contract it won from AT&T (T) in December 2023 to build out its U.S. network.

Ericsson expects its profit margins to remain strong throughout the year, predicting margins in the range of 42-44% in the second quarter, thanks to a more profitable mix of products and services in the second half of the year.

In January, Ericsson warned that a slump in the buildout of new mobile phone infrastructure in non-China markets would lead to a 10% drop in sales throughout 2024. The telecom later confirmed plans to cut costs by laying off 8,500 workers worldwide.

The Swedish company, which was first started in 1876, said a slowdown in the buildout of new 5G infrastructure in India, following a boom during the COVID-19 pandemic, would also impact sales this year.

In a note, Jefferies analysts led by Janardan Menon, said that "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 stabilising sales in H2."

-Louis Goss

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04-16-24 0450ET

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