Earning Scorecard: Nokia

The largest mobile phone manufacturer in the world declared relatively strong third-quarter 2011 financial results, beating both the top-line and bottom-line expectations.

By Zacks.com Nov 8, 2011 1:27AM

Nokia (NOK), the largest mobile-phone manufacturer in the world, declared relatively strong third-quarter results, beating both top-line and bottom-line expectations.

This encouraging performance was primarily attributable to better-than-expected sales of basic mobile phones, mainly in emerging markets.


Recently, the company launched its much-hyped Microsoft (MSFT) Windows Phone 7 smartphones, called Nokia Lumia 800 and Nokia Lumia 710. Going forward, we expect more such handsets to be released by the company, which in turn will help Nokia gain market share. Microsoft owns and publishes Top Stocks, an MSN Money site.

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Third-Quarter Highlights

Quarterly net revenue was approximately $12.7 billion, down 13% year over year, surpassing the Zacks Consensus Estimate of $12.3 billion. Quarterly net loss was approximately $214 million or 3 cents per share compared with a net income of $456 million or 20 cents per share in the prior-year quarter. However, third quarter 2011 adjusted (excluding special items) EPS of 4 cents was significantly above the Zacks Consensus Estimate of a loss of 1 cent.


Quarterly adjusted operating income was approximately $357 million, down 60% year over year. Adjusted operating margin in the third quarter was 2.8% compared with 6.2% in the year-ago quarter. Operating cash flow in the reported quarter was $1.2 billion, up 94% year over year.


Agreements of Analysts

Of the 20 analysts covering the stock in the last seven days, none revised their estimates for the fourth quarter of fiscal 2011. Likewise, for first quarter of fiscal 2012, out of the 14 analysts covering the stock in the last 7 days, none revised their estimates.


Similarly, for fiscal 2011, in the last seven days, out of the 22 analysts covering the stock, none revised their estimates upward or downward. Also, for 2012, in the last seven days, none out of the 23 analysts covering the stock revised their estimates upward or downward.


Such cautious stance adopted by the analysts suggest that they prefer to remain on the sidelines due to the recent launch of Nokia’s much-hyped Window Phone 7-based smartphones. As the holiday season is approaching, it is to be seen how these new handsets will perform.


Currently, the Zacks Consensus EPS Estimate for the fourth quarter of fiscal 2011 is pegged at 7 cents, which indicates a loss of 78% year over year. Similarly, for the first quarter of fiscal 2012, the Zacks Consensus EPS Estimate of 4 cents reflects a loss of 78.15%.

Likewise, for fiscal 2011, Zacks Consensus EPS Estimate is pegged at 34 indicating a loss of 58.43%. However, for fiscal 2011, Zacks Consensus EPS Estimate stands at 36 cents, reflecting a profit of 4.22%.


Magnitude of Estimate Revisions

During the last seven days, the Zacks Consensus Estimate for fourth quarter 2011 was in line with the current estimate of seven cents per share. Likewise, for the first quarter of fiscal 2012, the Zacks Consensus Estimate  was in line with the current estimate of 4 cents per share.

For fiscal 2011 and 2012, the Zacks Consensus Estimates were in line with the current estimates of 34 and 36 cents, respectively.


Earning Surprises

With respect to earnings surprises, the company’s consistent track record in the last four quarters is expected to persist in the coming quarters. In the last quarter, Nokia produced an earnings surprise of 5 cents or 500%. The ongoing quarter and the first quarter contain an upside potential of 0.00% (essentially a proxy for future earnings surprises).


Likewise, fiscal 2011 and 2012 contains upside potentials of 2.94% and 5.56%, respectively.


Our Recommendation

Continuous loss of market share coupled with stiff competition from Google’s (GOOG) Android-based smartphones and Apple’s (AAPL) iPhones are headwinds for the company.


However, the launch of Windows Phone 7 smartphones coupled with increased shipments of Nokia’s dual-sim handsets in the emerging nations will act as catalysts for growth going forward. Furthermore, aggressive cost reduction process implemented by the company will also act as a tailwind for the company.


We, thus, maintain our long-term neutral recommendation for Nokia. Currently, Nokia has a Zacks No. 3 Rank, implying a short-term hold rating on the stock.


About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/


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