Ericsson shares fall as tariff uncertainty dampens outlook

(Sharecast News) - Second-quarter results from Ericsson came in mixed on Tuesday, while shares in the Swedish telecom giant fell on the back of a cautious outlook, owing partly to tariffs on imports into the US. Net sales totalled SEK56.13bn over the second quarter, down 6% on last year but 2% ahead in organic terms, with gross income rising 3% to SEK26.65bn.

Net sales missed the SEK59.3bn consensus estimate, though diluted earnings per share improved to SEK1.37 from a loss of SEK-3.34 previously, and ahead of the SEK1.25 expected by the market.

Organic growth was driven by the Americas division and a good performance in intellectual property rights (IPR) licensing, partly offset by declines in other regions, including India where investments are on hold.

The adjusted gross margin jumped to 49.5% from 46.1% a year earlier, as higher IPR licensing revenues, cost-cutting measures and improved market mix was partly offset by the negative impact from tariffs.

Börje Ekholm, president and chief executive, said it was "encouraging" that growth in the Americas division has continued (10% in organic terms in the second quarter), and that Europe had stabilised (-1% organic growth).

"Our Q2 results demonstrate solid execution of our strategic and operational priorities. We achieved a three-year high in adjusted EBITA margin, supported by continued efficiency actions. We have structurally lowered our cost base and are strongly focused on delivering further efficiencies," he said.

However, looking ahead, the company noted "increased uncertainty" in its the outlook, "both in terms of potential for further tariff changes as well as in the broader macroeconomic environment".

While the US accounted for 44% of group net sales in the quarter, the tariff impact will likely be felt significantly in its sourcing of components and materials, since it already has manufacturing operations in the country.

Ericsson shares were nearly 4% lower at SEK74.48 by 1118 in Stockholm.