Ericsson (NASDAQ:ERIC) stock rose Friday after the Swedish telecom giant reported stronger-than-expected fourth-quarter earnings.
Ericsson, which generates the bulk of its revenue from network infrastructure, software solutions, and professional services, reported EPS of 27 cents, beating the analyst consensus estimate of 23 cents.
The company’s reported sales for the quarter were 69.3 billion Swedish Krona ($7.37 billion).
Although this represented a 5% year-over-year (Y/Y) decline, it topped the consensus revenue estimate of $7.03 billion.
Organic sales, which exclude the impact of acquisitions, divestments, and foreign currency fluctuations, rose 6% for the period.
The Networks division, a core business for the company, saw sales fall by 6%.
The Enterprise segment experienced a steep 25% decline, primarily due to the divestment of iconectiv during the third quarter.
However, this decline was partially offset by a 3% growth in Cloud Software and Services sales.
Within the Networks segment specifically, organic sales decreased by 4%, as sales growth in Europe, the Middle East, and Africa, as well as in South East Asia, Oceania, and India, was partly offset by lower sales in the other market areas.
Cloud Software and Services sales grew by 12%, with growth in all market areas.
Sales in the Enterprise segment grew by 2%, with higher sales in Global Communications Platform offsetting a decline in Enterprise Wireless Solutions.
Profitability and Cash Position
The adjusted gross margin improved to 48.0% from 46.3% Y/Y, a gain driven by successful cost-reduction actions and operational efficiency.
This translated down the income statement, where the adjusted EBIT margin improved to 17.7% from 13.1% Y/Y, and the adjusted EBITA margin improved to 18.3% from 14.1% a year ago.
Despite the financial outperformance, free cash flow before M&A was 14.9 billion Swedish Krona in the quarter, down from 15.8 billion Swedish Krona in the prior-year period.
The company’s net cash position stood at 61.2 billion Swedish Krona at year-end 2025.
CEO Commentary, Dividend, Buyback
Börje Ekholm noted that the company delivered organic growth despite a flat RAN market, driven by momentum in mission-critical networks, 5G core, and Enterprise.
He added that operational actions taken over recent years have improved margins and cash flow, marking a ninth straight quarter of year-over-year adjusted EBITA margin expansion.
Ekholm said the company continued investing in R&D to extend its technology leadership, with a focus on AI-native, secure, and autonomous mobile networks.
He highlighted strong free cash flow generation and a solid cash position.
He also said the board plans to propose a higher dividend of 3.00 per share Swedish Krona and seek authorization for a 15 billion Swedish Krona share buyback.
Outlook
Looking ahead to 2026, Ekholm said the company expects the Radio Access Network (RAN) market to remain flat, while mission-critical and Enterprise markets should grow.
In response, he said the company plans to increase defense investments in 2026 while continuing to optimize its cost base to support margins and cash flow.
The company forecasts that first-quarter sales growth for Networks will be broadly in line with the 3-year average seasonality.
Similarly, it expects quarterly Cloud Software and Services sales to be below the 3-year average seasonality.
Based on its current assessment of announced tariffs, the company anticipates a quarterly adjusted gross margin of 49% to 51% for Networks.
ERIC Price Action: Ericsson shares were up 7.10% at $10.26 during premarket trading on Friday. The stock is trading near its 52-week high of $10.35, according to Benzinga Pro data.
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