Mobile phone giant Nokia
Check out the press release for highlights, but we reviewed the earnings call to find anything the PR department might omit from its spin. For any company -- Nokia or not -- read a press release with the skepticism you would accord any Ministry of Corporate Propaganda. We used a call transcript prepared immediately by CCBN's StreetEvents service (subscription required). The next step is to scour analysis by our Motley Fool community -- including this terrific discussion today on our Nokia board.
The four things that stuck out on the call were currency valuation effects; growth in handset unit sales and market share against flat revenues and profits; continued solid free cash flow; and lowered Q4 guidance.
Currency effects? Please don't snooze. Nokia's accounting currency is the euro, which suffered greatly from a decline against the U.S. dollar. Currency fluctuations accounted for the sales decline and half of the decline in Nokia's mobile phone average selling prices (ASPs).
Earnings climbed from 0.13 euros per diluted share in last year's Q3 to 0.17, but sales fell from 7.22 million euros ($8 billion at then-exchange rates) to 6.87 million euros ($5.3 billion at today's rates). Nokia CEO Jorma Ollila rightly trumpeted the company's growth in mobile phones share from 36% to 39%, stemming from a 23% year-over-year volume increase against the industry's 15% growth.
Gross and operating margins were stable but are under pressure, at least in part because Nokia's blazing growth in developing countries favors lower-margin handsets. Ollila counterbalanced by stressing Q4 higher-margin product introductions and that inventories are well under control.
A bright sign: Nokia's CDMA phone market share doubled. Nokia and Qualcomm
Nokia is a cash machine, turning out 1.2 billion euros in operating cash flow, with stable capital expenditures of 122 million euros. This added almost 900 million euros to cash -- after spending 450 million on share buybacks (the company has repurchased 54 million shares). At recent valuations -- 13 times enterprise value to consistent free cash flow -- share buybacks are not an unreasonable allocation of capital to benefit shareholders.
Nokia forecasts 2003 handset volume at 460 million, with sales flat or slightly up from Q3 and earnings per share of 0.21 euros, just off Street estimates. That led to the stock drop.
The Finnish giant recently announced a 2004 restructuring into four business units that will allow a closer look at its different operations and monitor growth more carefully. The company's doing a great job of managing expenses and growing market share in an intensely competitive environment, but investors will want sales to increase.