Ericsson reported a further strengthening in sales growth in the first quarter, with revenues up 7 percent on an organic basis compared to 4 percent in the previous quarter, thanks to expansion in the North American market. The company returned to a net profit, of SEK 2.4 billion, versus a loss of SEK 0.7 billion in the year-earlier period.
On a reported basis, revenues were up 13 percent year-on-year to SEK 48.9 billion, and the company's gross margin improved to 38.4 percent from 34.2 percent a year earlier. The operating result was a profit of SEK 4.9 billion, compared to a loss of SEK 0.3 billion a year ago, giving it a margin of 10.0 percent.
Operating profit excluding restructuring charges of SEK 0.2 billion and positive one-time items of SEK 1.6 billion totaled SEK 3.5 billion, equal to a margin of 7.2 percent. The one-time gains included a profit of SEK 0.7 billion on the sale of Mediakind, completed 01 February, SEK 0.1 billion from the sale of Red Bee Media assets, and the reversal of a provision of SEK 0.7 billion following payment by a customer.
Margin pressure
Ericsson noted that its gross margin will start to come under pressure from Q2 as 5G trials and certain strategic contracts get underway, and it expects further impact in the course of 2019 as 5G roll-outs begin in Asia and the share of managed services revenues in North America increase. However, the continued strong business in North America should help limit the impact of seasonality in 2019.
The impact of strategic contracts and 5G field trials was limited in Q1. The company said it reached 18 named contracts for 5G in the period, more than any other vendor. Over the long term, this will strengthen its business, and the company said it remains on track to reach its targets for 2020 and 2022. Ericsson also improved its growth outlook for the RAN market this year, to 3 percent growth from an estimate in January of 2 percent.
The group further warned of an expected material financial effect from the ongoing US investigation of its compliance with the Foreign Corrupt Practices Act, first started in 2013. Settlement talks started recently, but are still at a very early stage. "However, based on the current status of the discussions it is our assessment that the resolution of these matters will result in material financial and other measures, the magnitude and impact of which cannot be reliably estimated or ascertained at this time," the company said.
