Ericsson (ERIC) to Report Q2 Earnings: What's in the Cards?

Ericsson ERIC is scheduled to report second-quarter 2018 results before the opening bell on Jul 18. The company has a bleak earnings history with consecutive colossal earnings misses. However, Ericsson managed to beat estimates by 4 cents in the last reported quarter with an average negative surprise of 269.2% in the trailing four quarters.

Let's see how things are shaping up for this announcement and whether Ericsson can beat earnings this quarter.

Factors to Consider

The information and communications technology solutions provider is grappling with shrinking markets and stiff competition from other established players in the market. Further, spectrum crunch has become a major issue in the U.S. telecom industry that has a saturated wireless market. The situation has worsened with the growing popularity of iPhone and Android smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services. Moreover, slowdown in spending by wireless carriers severely hurt the company’s financials over the past few quarters and is likely to affect the upcoming results.

Most of the company’s troubles have stemmed from the drying up of investments by major telecom equipment makers across the world. The company’s revenues and margins in the Networks and IT & Cloud segments are likely to take a beating from adverse industry trends.

To add to the woes, Ericsson foresees sustained weakness in the market for radio access networks. Network equipment sales, particularly in North America and Europe, continue to contract. Europe and Latin America — the markets with the biggest impact — are likely to have an increasingly challenging investment environment in the quarters to come. In addition, the trade tariffs imposed by the Trump administration are likely to affect its sales in the communist nation.

Soft mobile broadband demand and slowdown in emerging markets will continue to significantly dent Ericsson’s performance. These factors will likely manifest in the company’s sales in the to-be-reported quarter.

Despite these challenges, Ericsson remains the world’s largest supplier of LTE technology, with significant market share and a large number of LTE networks worldwide. The company envisions healthy traction in its 4G portfolio and 5G readiness. At the same time, Ericsson is continuing with steady investment in R&D, technology leadership and gross margin improvement. The company has inked a credit facility agreement of €250 million with European Investment Bank to finance its R&D activities in the 5G network field, while trimming its workforce to reduce operating costs and improve bottom line.

Ericsson is seeking to seize business opportunities as operators shift toward 4G deployments and prepare ground for the forthcoming 5G revolution. The company plans to focus more intently on software sales and recurring business that complements its thriving Professional Services business in terms of “targeted growth” investments. Ericsson expects to be better equipped to address the varied needs of its customer segments and tap new markets to foster growth.

Earnings Whispers

Our proven model does not conclusively show that Ericsson is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is 0.00% with both pegged at 2 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ericsson Price and EPS Surprise

 

Ericsson Price and EPS Surprise | Ericsson Quote

Zacks Rank: Ericsson has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Comerica Incorporated CMA has an Earnings ESP of +1.80% and Zacks Rank #3.

Verizon Communications Inc. VZ has an Earnings ESP of +0.31% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation NVDA has an Earnings ESP of +0.48% and a Zacks Rank #3.

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