Nokia (NYSE:NOK) hasn’t been able to catch a break this year, something that has only been accentuated today by an unscheduled business update. Specifically, management lowered its net sales outlook for the current fiscal year, sending investors rushing for the exits. To make matters worse, the company previously warned about the consequences of monetary policy in its first-quarter report. NOK stock closed down by about 9% today.
According to the update, Nokia lowered its revenue guidance to a range between 23.2 billion euros and 24.6 billion euros. This forecast contrasts with the prior range between 24.6 billion euros and 26.2 billion euros. Management also narrowed its operating margin range to between 11.5% and 13%. Previously, guidance had called for a range between 11.5% and 14%.
For the second quarter, Nokia expects to report (based on preliminary financial results) net sales of about 5.7 billion euros. If so, this tally would represent flat growth on a year-over-year (YOY) constant currency basis. In contrast, net sales in Q1 2023 came in at a 9% YOY gain.
“The weaker demand outlook in the second half is due to both the macro-economic environment and customers’ inventory digestion,” noted Nokia in the update. Further, leadership stressed that “high inflation and rising interest rates” have negatively affected consumer spending plans.
NOK Stock Suffers From Broadcasted Concerns Ringing True
At first glance, Nokia’s Q1 report should have bolstered NOK stock. As stated earlier, net sales of 5.86 billion euros represented a 9% YOY gain in constant currency (or 10% as reported without the adjustment). Also, enterprise net sales grew 62% YOY in constant currency (or 65% reported).
However, in the same Q1 disclosure, comparable gross margin declined 300 basis points YOY to 37.7%, due in part to a “lower contribution from Nokia Technologies.” Comparable operating margin declined 270 basis points YOY as well to 8.2%, due to the same factors.
Still, what has really stung NOK stock are Nokia’s risk disclosures. In Q1, while Nokia President and CEO Pekka Lundmark unveiled a “renewed corporate strategy and refreshed brand,” the head exec also cited broader fundamental concerns:
“Looking forward, we are starting to see some signs of the economic environment impacting customer spending. Given the ongoing need to invest in 5G and fiber, we see this primarily as a question of timing; nevertheless we will maintain our cost discipline to ensure we can successfully navigate this uncertainty.”
Further down the Q1 announcement, management disclosed “accelerating inflation, increased global macro-uncertainty, major currency fluctuations and higher interest rates” as key headwinds. Unfortunately, based on the surprise update today, it appears that Nokia is still struggling.
Invariably, then, NOK stock has suffered from a sharp loss of confidence this year.
Why It Matters
For now, Wall Street analysts covering NOK stock within the past three months rate shares as a consensus “moderate buy.” However, investors should monitor the expert opinion space for possible changes. Currently, the average price target for Nokia stock lands at $5.71, implying roughly 44% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
