— Ericsson surprised investors with strong third-quarter earnings on Monday as it escaped unhurt from the financial turmoil roiling world markets, sending its shares some 20 per cent higher.
The world's biggest telecom network maker made an operating profit of 5.7-billion Swedish crowns ($772.5-million U.S.) excluding restructuring charges. That compared with a year-earlier total of 5.6-billion crowns and with an average forecast of 4.0-billion excluding restructuring charges in a Reuters poll of 32 analysts.
Ericsson, which had been scheduled to unveil quarterly earnings this Friday, said it benefited from heavy network traffic. Its shares, which had fallen earlier this month to their lowest in more than five years, jumped 19.7 per cent to 60.10 crowns by 0847 GMT.
The company said it released earnings early because they were significantly better than expected. This time last year, Ericsson also had to make an early earnings statement – but for the opposite reason.
“The headline figures clearly beat expectations so that was positive,” said Nicolas von Stackelberg, analyst at Sal Oppenheim. “And it was across the board. Every single business unit performed better than expected, but most notably networks.”
Robert Jakobsen, analyst at Jyske Bank, was also impressed with the network business, which generates the bulk of Ericsson sales and registered a 16 per cent gain in third-quarter revenue.
“Even though market conditions are tough, they are still moving in the right direction,” Mr. Jakobsen said.
He singled out the operating margin of 11.5 per cent, when he had expected 9.5 per cent, as a positive sign. “I was actually worried that the operating margin would fall from Q2, but it is increasing by 100 basis points,” he said.
It was a year ago almost to the day that Ericsson stunned the market with weak quarterly earnings and margins, due mostly to a collapse in higher-margin network expansions and upgrades. It led to months of sliding Ericsson share prices.
This was the third consecutive quarter that Ericsson has topped forecasts and Chief Executive Officer Carl-Henric Svanberg was upbeat.
“Our financial position is strong with healthy net cash and high payment readiness. Our business in the quarter has not been impacted by the financial turmoil,” Mr. Svanberg said in a statement.
“Our customers are generally financially strong. In addition, networks are loaded and traffic shows a strong increase,” Mr. Svanberg said.
But speaking later with analysts, Mr. Svanberg cautioned against reading too much into one quarter. He also noted that the worst turmoil has been in the past few weeks, after the quarter ended.
“The total nine months is a good base for thinking about Q4,” he said, adding the latest sales figures were helped by volume-switching between the second and third quarters.
“We are not giving guidance – we just want to stop you from being too excited about the strong sales in Q3.”
The company, which said in February it would axe 4-billion crowns from its annual cost base, took a 2-billion crown restructuring charge in the latest quarter. That compared with forecasts for a 563-million crown charge.
Mr. Svanberg said that with current financial conditions, it was difficult to predict how telecom operators would act.
“Given the present market conditions, we will continue with cost adjustment activities in the fourth quarter, although at a slightly lower pace,” he said.
Ericsson's profitability stands in contrast to some of its rivals. Nokia Siemens Networks reported an operating loss of €1-million last week, although that was much narrower than the 120-million lost a year earlier.
Alcatel-Lucent, which has not released third-quarter results yet, lost €1.1-billion in the second quarter.
