Nokia beats estimates for Q4 profit: ‘great end to transformational year’

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Nokia Corp (NYSE: NOK) reinstated shareholder returns after reporting better-than-expected net profit for the fiscal fourth quarter on Thursday. Shares still opened about 3.0% down as sales came in shy of estimates.

Q4 financial performance

Nokia said its net profit printed at €727 million versus the year-ago figure of €787 million. At €6.41 billion, its sales were down 5.0% YoY. In comparison, analysts had called for a lower €636 million in net profit but a higher €6.51 billion in sales.

On a reported basis, Nokia said its comparable operating margin stood at 11.5% in the fourth quarter – down 480 basis points due to lower Q4 seasonality. The telecom firm generated €400 million in free cash flow in the recent quarter. On CNBC’s “Squawk Box Europe”, CEO Pekka Lundmark said:

It was a great end to a transformational year. We improved our operating margins by 300 basis points. We did say this year we’ll have a more even distribution of profits across the year, so the Q4 peak won’t materialise. It went as expected, and we are very happy with our performance.

Outlook for fiscal 2022

Nokia agreed that supply constraints continued to be a challenge but has a positive outlook for 2022 on strong order backlog and improved margins. It forecasts up to a 7.0% annualised increase in sales this year on an 11% to 13.5% adjusted operating margin. The chief executive added:

We’re seeing strong end-market demand in both mobile and fixed broadband infrastructure. Secondly, we have increased R&D in tech development and leadership. We now have a much stronger product position than a year ago, and the next target is to accelerate growth and margin expansion.

The Finnish multinational wants to lift its underlying operating margin to over 14% over the next three to five years, as per the earnings press release. According to CEO Lundmark, 5G poses a great opportunity for Nokia that has a 4G and 5G combined market share of 26% at present, excluding China.

We’ve significantly increased our investment in 5G development. We’re investing to repeat our 4G success in 5G. We now have excellent feedback from our customers on our technology competitiveness in 5G, and these investments, of course, will continue.

Dividend and share buyback

Nokia declared 8 cents per share of dividend on Thursday. The company also said it will repurchase €600 million worth of its stock. CEO Lundmark said:

The first priority in capital allocation is R&D. Then the next priority is shareholder distributions. We’re targeting fairly stable and, over time, increasing dividends. We will also do, from time to time, share buybacks whenever we’ll have excess cash.

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