Ericsson ERIC reported a soft fourth-quarter 2024 results, with both top and bottom lines missing the Zacks Consensus Estimate. However, the company reported marginal year-over-year top-line growth. Despite solid demand in North America, weakness in the Middle East, Africa, South East Asia, Oceania and India regions affected top-line growth.

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Higher IPR licensing revenues, cost optimization and a robust portfolio boosted the gross margin. Healthy increase in the free cash flow, backed by improvement in working capital, is a tailwind.

ERIC’s Net Income

Ericsson reported a net income of SEK 4.9 billion ($454 million) or SEK 1.44 (13 cents) per share in the fourth quarter compared with SEK 3.4 billion or SEK 1.02 per share in the prior-year quarter. Cost discipline initiative and net sales growth in some verticals supported the bottom line. Adjusted earnings came in at 17 cents per share, missing the Zacks Consensus Estimate of 21 cents.

For 2024, Ericsson reported a net income of SEK 0.4 billion or SEK 0.01 per share, up from a net loss of SEK 26.1 billion or a loss of SEK 7.94 in 2023.

ERIC’s Revenues

Ericsson generated SEK 72.9 billion ($6.76 billion) in revenues, up 1% year over year. Despite the weakness in Enterprise, Cloud Software and Services segments, growth in the Networks segment supported the top line. However, the top line fell short of the Zacks Consensus Estimate of $6.96 billion.

For 2024, Ericsson reported revenues of SEK 247.9 billion, down from SEK 263.4 billion in 2023.

The Networks segment generated SEK 46.8 billion ($4.34 billion), up 4% from the year-ago quarter’s SEK 45 billion. The top line beat our revenue estimate of SEK 45.19 billion. The segment’s adjusted gross margin improved to 49.1% from 43.2% in the year-ago quarter. Sales in the Networks segment from North America improved a staggering 70% year over year, owing to several contract wins and greater network investments from large customers. Sales in Europe and Latin America grew 3% year over year. 

However, sales declined in South East Asia, Oceania and India. Following a record level of investments in 2023, operator capex significantly declined in India. Healthy growth in IPR licensing revenues backed by new 5G licensing agreements also supported the top line.

Cloud Software and Services contributed SEK 19.5 billion ($1.81 billion) in revenues, marginally down from SEK 19.6 billion in the year-ago quarter. Sales grew in North America and were stable in the region of Europe and Latin America. However weak demand in other regions offset the positive trend. The top line beat our revenue estimate of SEK 18 billion. Adjusted gross margin improved to 39% from 37.3% in the prior-year quarter. Increased IPR licensing revenues and improvement in delivery performance propelled the gross margin.

Enterprise sales declined to SEK 6.1 billion ($566 million), down 9% year over year. Net sales missed our revenue estimate of SEK 7.44 billion. Declining sales in the Global Communication Platform impeded the top line. Growth in Enterprise Wireless Solutions partially reversed the negative trend. Adjusted gross margin was 54.3%, up from 44.3% in the year-ago quarter. Other revenues were SEK 0.6 billion ($56 million).

Region-wise, South-East Asia, Oceania and India registered revenues of SEK 8.4 billion ($779 million), down from SEK 11.8 billion in the prior-year quarter. Revenues from North East Asia fell 22% year over year to SEK 7.1 billion ($659 million). Net sales from North America increased 53% year over year to SEK 22 billion ($2.04 billion), backed by contract wins and growing network investments. 

Europe and Latin America’s markets witnessed 1% year-over-year growth to SEK 19.4 billion ($1.8 billion). Revenues in the Middle East and Africa fell 19% to SEK 6.3 billion ($584 million), due to a slowdown in capex investments and macroeconomic headwinds. Revenues from other regions rose to SEK 9.7 billion ($900 million) from SEK 9.6 billion in the prior-year quarter.

Other Details on ERIC

Adjusted gross income increased to SEK 33.7 billion ($3.12 billion) from the year-ago figure of SEK 29.6 billion. Adjusted gross margin was 46.3%, up from 41.1% in the year-earlier quarter, driven by supply-chain efficiency, favorable market mix and commercial discipline. Higher IPR licensing revenues, cost-reduction actions and a competitive product portfolio also elevated the gross margin.

ERIC’s Cash Flow & Liquidity

Ericsson generated SEK 17.5 billion ($1.62 billion) cash from operating activities during the quarter compared with SEK 14.5 billion in the prior-year quarter. In 2024, it generated SEK 46.3 billion in cash from operating activities compared with SEK 7.2 billion in the previous year.

As of Dec. 31, 2024, the company had a net cash of SEK 37.8 billion ($3.43 billion) with SEK 24.4 billion liabilities for post-employment benefits.

ERIC’s Outlook

Management anticipates solid demand in North America will drive sales in the Networks segment in the forthcoming quarter. For first-quarter 2025, revenue growth from the Networks, Cloud Software and Services segment is expected to broadly follow the average seasonality of the last three years. Adjusted Gross margin in the Networks segment is likely to be in the range of 47-49%. Restructuring charges are projected to remain elevated in 2025.

ERIC’s Zacks Rank & Stocks to Consider

Ericsson currently has a Zacks Rank #3 (Hold).

Keysight Technologies, Inc. KEYS has a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the last reported quarter, it delivered an earnings surprise of 5.10%. Keysight is expected to benefit from the growing proliferation of electronic content in vehicles, momentum in space and satellite applications and rising adoption of driver-assistance systems globally.

InterDigital IDCC currently sports a Zacks Rank #1. In the last reported quarter, it delivered an earnings surprise of 114.47%.

It is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company designs and develops a wide range of advanced technology solutions used in digital cellular, wireless 3G, 4G and IEEE 802-related products and networks.

Zillow Group, Inc. ZG sports a Zacks Rank #1 at present. In the last reported quarter, it delivered an earnings surprise of 9.38%. ZG delivered an earnings surprise of 25.47%, on average, in the trailing four quarters. The company is witnessing solid momentum in rental revenues, driven by growth in multi and single-family listings, which is a positive factor.

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