Finland-based Nokia Corporation’s (NOK - Free Report) fourth-quarter 2016 earnings per share of €0.12 (approximately 13 cents) beat the Zacks Consensus Estimate of 8 cents. In the year-ago period, Nokia had reported earnings of €0.15 (17 cents) per share.

Net sales declined year over year (on a comparable combined company basis) to €6.7 billion (approximately $7.1 billion). Moreover, the top line missed the Zacks Consensus Estimate of $7.38 billion. The disappointing performance by the Nokia Networks division was due to the challenging market conditions. Moreover, weak sales in Mobile Networks, which is part of Ultra Broadband Networks, contributed to the significant decline.

Quarterly adjusted gross margin was 42% in the reported quarter compared with 42.4% a year ago. Operating margin decreased 260 basis points (bps) to 14% on a year-over-year basis. In the fourth quarter, Nokia generated net cash from operating activities of €510 million as against €460 million at the end of 2015.

Nokia is rapidly expanding in the field of technology and wireless infrastructure. The company has entered into collaborations and agreements with leading names globally despite competition from peers like Motorola Solutions Inc. (MSI - Free Report) and Clearfield Inc. (CLFD - Free Report) . In fact, the fourth quarter was a busy one for Nokia, as it sued Apple Inc. (AAPL - Free Report) for patent infringement.

Segmental Revenues

In the Nokia Networks segment, total revenue was approximately €6,069 million (around $6,372 million), down 14% year over year (on a comparable combined company basis). The segment includes Ultra Broadband Networks, and IP Networks and Applications. The decline in the Ultra Broadband Networks sub-group by 15% to €4,332 million hurt the segmental sales. The segment’s sales also suffered due to a reduction of 12% to €1,976 million in net sales of the IP Networks and Application segment.

Notably, net sales declined in all regions, apart from Middle East & Africa, which led to the segment’s below-par performance. Net sales declined by 11% in North America,  30% in Latin America,  2% in the Asia Pacific, 33% in Greater China and  17% in Europe. Segmental gross margin improved 50 bps to 40.6% in the reported quarter. Quarterly adjusted operating margin was 14.1% compared with 15.5% a year ago.

In the Nokia Technologies segment’s quarterly total revenue was €309 million (approximately $324 million), down 25% year over year. Segmental gross margin was 92.9% compared with 99% in the fourth quarter of 2015. Operating margin contracted significantly to 51.1%.

In Group Common and Other, net sales surged 34% to €341 million (approximately $358 million). Segmental gross margin was 18.8%, up 620 basis points. The segment incurred an operating loss in the quarter under review.

Nokia Corporation Price, Consensus and EPS Surprise

Nokia Corporation Price, Consensus and EPS Surprise | Nokia Corporation Quote

Outlook

The telecom giant, that officially took control of rival Alcatel-Lucent in Jan 2016 continues to expect annual cost savings of €1.2 billion in full-year 2018, excluding Nokia Technologies. For 2017, capital expenditure outlook for the Zacks Rank #4 (Sell) company is approximately €500 million. 

The company expects net sales in its primary networks division to decline in 2017, which is in line with the primary addressable market. While segmental operating margin is forecasted to be in the band of 8–10%, non-IFRS tax rate is expected in the mid-point of the 30% to 35% in 2017.