Investors may want to question the strength of Nokia (NYSE:NOK) management. The company reported first-quarter results that were unacceptably poor. Net sales grew just 2% (down 2% in constant currency) Y/Y. Net cash also fell 52% in Q1/2019.
Outlook
Nokia’s full-year 2019 outlook is equally disappointing. The company forecast EPS of EUR 0.25- 0.29 and operating margin of 9%-12% (both figures are non-IFRS). In 2020, these results will improve to an EPS range of EUR 0.37 – 0.42. Operating margin will rise to 12%-16%.
Nokia’s long-term prospects are better than this years but the near-term challenges are disappointing. Investors could average into a position in NOK stock and wait out 2019. Order wins are often lumpy and unpredictable. Historically, Nokia would issue a weak quarterly outlook but then win deals to beat expectations.
5G readiness is unpredictable, so management is unable to give net sales guidance for 5G sales in North America. Still, it will recognize all sales before the end of this year. But what is clear is that gross profits in the Networks division are due to gross margin erosion in Mobile Access.
Your Takeaway
Nokia’s quarter is disappointing and is in stark contrast to the last quarterly earnings report. Even so, the prospects for the rest of the year and 2020 are brighter. Hold Nokia stock for now.
Disclosure: I own shares of NOK.
