Nokia Oyj :NOKBF-US: Earnings Analysis: Q3, 2017 By the Numbers : October 30, 2017

Nokia Oyj reports financial results for the quarter ended September 30, 2017.


  • Summary numbers: Revenues of USD 6,460.82 million, Net Earnings of USD -225.54 million.
  • Gross margins widened from 33.57% to 39.73% compared to the same period last year, operating (EBITDA) margins now 9.33% from 9.07%.
  • Change in operating cash flow of -386.11% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 6460.82 6188.67 5731.95 7156.64 6573.84
Revenue Growth (%YOY) -1.72 -1.83 -5.46 81.18 94.81
Earnings (mil) -225.54 -465.88 -504.13 710.17 -132.82
Earnings Growth (%YOY) -69.81 38.14 13.4 30.29 -163.56
Net Margin (%) -3.49 -7.53 -8.8 9.92 -2.02
EPS -0.04 -0.09 -0.1 0.12 -0.02
Return on Equity (%) -1.12 -2.21 -2.3 3.23 -0.6
Return on Assets (%) -1.86 -3.87 -4.16 5.8 -1.07

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, NOKBF-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if NOKBF-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 4.40% and earnings by 51.59% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 33.57% to 39.73%, while operating margins improved from 9.07% to 9.33% over this period. For comparison, gross margins were 39.79% and EBITDA margins 9.33% in the immediate last period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

NOKBF-US’s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now 113.74 days compared to 125.76 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

NOKBF-US’s year-on-year change in operating cash flow of -386.11% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 2.70% to 2.05% and (2) one-time items that contributed to a decrease in pretax margins from -0.42% to -5.33%

EBIT Margin History
PreTax Margin History

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Company Profile

Nokia Oyj provides network infrastructure, technology and software services. It operates through the following segments: Ultra Broadband Networks, IP Networks & Applications and Nokia Technologies. The Ultra Broadband Networks segment comprises mobile networks and fixed networks. The IP Networks and Applications segment comprising IP/Optical networks and applications & analytics. The Nokia Technologies segment focuses on advanced technology development and licensing. The company was founded in 1865 and is headquartered in Espoo, Finland.

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