LM Ericsson Telephone (ERIC.US) released its third-quarter earnings on October 14th Eastern Time, reporting that adjusted EBITDA more than doubled year-over-year following the sale of its call routing business subsidiary Iconectiv.
Financial data shows that Ericsson's Q3 sales declined to 56.2 billion Swedish kronor from 61.8 billion Swedish kronor in the same period last year, with organic sales down 2% year-over-year. Despite a 9% decline in quarterly sales compared to the previous year, the company's adjusted quarterly profit exceeded analyst expectations, benefiting from operational optimization that significantly boosted gross margins.
Adjusted earnings before interest and taxes (EBIT) reached 15.5 billion Swedish kronor (approximately $1.62 billion), surpassing analysts' previous estimates of 14.1 billion Swedish kronor and compared to 7.3 billion Swedish kronor in the same period last year. Third-quarter adjusted EBITA was 15.8 billion Swedish kronor (approximately $1.67 billion), versus 7.76 billion Swedish kronor in the prior year period.
The company's adjusted gross margin improved from 46.3% in the same period last year to 48.1%, driven by excellent operational execution and cost optimization measures. Additionally, the divestiture of the Iconectiv business generated a capital gain of 7.6 billion Swedish kronor, causing Ericsson's EBITA margin to surge to 27.6%.
The earnings report also revealed that Ericsson secured multiple important customer agreements during the quarter, covering markets in India, Japan, and the United Kingdom. Meanwhile, its 5G Open RAN (Radio Access Network) ready product portfolio received certification from both Gartner and Omdia, maintaining its industry-leading position.
Looking ahead, Ericsson expects fourth-quarter enterprise business organic sales to stabilize, with the overall RAN market remaining stable. The company's net cash position has increased to 51.9 billion Swedish kronor, providing room for enhanced shareholder returns going forward.
CEO Börje Ekholm added: "Stable recurring cash flow combined with proceeds from the Iconectiv divestiture contributed to strong cash conditions in the third quarter, creating opportunities for us to enhance shareholder returns."
However, it's worth noting that the current telecom equipment market remains highly competitive, and Ericsson has been addressing market challenges through cost reduction and margin improvement initiatives. Over the years, both Ericsson and its Nordic competitor Nokia Corporation (NOK.US) have faced weak demand challenges: on one hand, expected 5G technology-related spending has not materialized as anticipated; on the other hand, USD weakness has also impacted both companies' performance.
Year-to-date, Ericsson's stock price has declined approximately 13%.