Nokia’s Q2 2022 profit exceeded market expectations
Nokia reported better-than-expected earnings in the second quarter of 2022. Nokia reported a net profit of 585 million euros, beating analysts’ expectations for second-quarter 2022 profits. This compares with a profit of 539 million euros announced a year earlier.
Nokia also reported double-digit growth in its flagship line with sales growing 11% year over year. Here are the highlights of the gains made by Nokia for the second quarter of 2022.
- Second quarter net sales were up 3% year over year in constant currency (+11% reported).
- Network infrastructure net sales grew 12% in constant currency, with growth in all four companies while mobile networks returned to growth despite ongoing supply chain constraints.
- Net sales of cloud and network services were flat in constant currency while Nokia Technologies fell 25% as it continued to be affected by expired licenses that are in the process of being renewed.
- Comparable gross margin of 40.6% and operating margin of 12.2%. Core profitability improved but was offset by Nokia technologies and a one-time software deal in mobile networks in the previous year which meant lower margins year on year.
- Reported gross margin decreased 80bps yoy to 40.2% and operating margin expanded 50bps yoy to 9.6% as the above factors affecting similar margins were mainly offset by lower restructuring fees.
- Similar diluted earnings per share 0.10 €; Diluted EPS of €0.08 is reported.
- Free cash flow is negative 0.1 billion euros, net cash balance 4.5 billion euros.
- Strong performance in the first half with 2% net sales growth and a similar operating margin of 11.6% (8.2% reported), down slightly as timing effects in Nokia technologies offset fundamental improvements in profitability.
- The entire 2022 net sales forecast is unchanged in constant currency. The forecast for full-year net sales applying the June 30, 2022 exchange rates is between €23.5 billion and €24.7 billion. Similar operating margin guidance remained 11% to 13.5%.
Here’s what Nokia CEO says about the company’s financial performance.
I am happy to say that we continued to perform well in the second quarter. We improved net sales growth to 3% in constant currency despite ongoing supply chain constraints. We achieved another quarter of strong profitability with a similar operating margin of 12.2%, down slightly year over year due to the timing effects of contract renewals in Nokia technologies and a one-time software deal last year. Excluding these factors, we can see strong and continued improvement in core business profitability.
Network infrastructure maintained its strong growth momentum with net sales up 12% in constant currency more than offsetting the decline in Nokia technologies. I was pleased to see mobile networks return to growth with a 1% increase in constant currency despite supply chain constraints, while cloud and networking services were stable year-over-year.
Momentum continues to build in the organization with increased demand and a return to growth with an 8% increase in net sales in constant currency critical to our long-term aspirations in the industry. Since the beginning of this year, we have made further investments in private wireless communications in both research and development and moving to market to capitalize on our early market leadership. We expect these investments to generate strong financial returns for us mid-term as evidenced by the double-digit net sales growth in private wireless in the quarter.
While we recognize the growing global macroeconomic uncertainty and currency fluctuations affecting some emerging markets, I am confident that we have the right strategy to address these challenges along with supporting the trends of architecture adoption in 5G and fiber networks. However, we will not be complacent; We remain focused on building technology leadership and improving cost efficiency to achieve our strategic goals for the coming years.
Our first half has been strong and with our renewed competitiveness, we are well positioned to deliver our guidance for the whole of 2022. There are still risks around the timing of Nokia Technologies contract renewals and a possible COVID-19 shutdown and the supply chain remains a challenge but is showing signs of improvement. We are currently tracking towards the higher end of net sales guidance and towards the middle of operating margin guidance as we manage ongoing inflation and currency headwinds.