Ericsson, the Swedish multinational specializing in telecommunications equipment and services, recorded a satisfactory financial performance for the fourth quarter, resulting in a notable increase in its stock price during premarket trading on the reporting day. The company posted earnings per share (EPS) of 27 cents, surpassing analyst expectations which had anticipated 23 cents per share.
Revenue for the quarter totaled 69.3 billion Swedish Krona (SEK), equivalent to approximately $7.37 billion. While this figure represents a 5% decrease compared to the same period last year, it still exceeded the market consensus, which projected revenues at around $7.03 billion. When adjusting for factors such as acquisitions, divestitures, and currency fluctuations, the company achieved a 6% increase in organic sales.
Examining business divisions separately reveals mixed outcomes. The Networks segment, which forms a fundamental part of Ericsson's operations, experienced a 6% sales decline overall. More granularly, the Networks segment saw a 4% reduction in organic sales. This slippage was, however, uneven geographically; it was moderated by sales growth in regions encompassing Europe, the Middle East, Africa, Southeast Asia, Oceania, and India, offset by weaker sales in other markets.
The Enterprise division witnessed a significant 25% drop in sales, linked largely to the disposal of iconectiv in the prior quarter. Despite this downswing, the segment managed a 2% increase in sales when isolating other activities, driven primarily by stronger performance in the Global Communications Platform area. This was counterbalanced by a decline in Enterprise Wireless Solutions revenues.
One bright spot was in the Cloud Software and Services business, which registered a robust 12% sales increase across all market areas. Collectively, these dynamics underpinned the broader revenue trends observed in the quarter.
On the profitability front, Ericsson made meaningful strides. The adjusted gross margin improved to 48.0% from 46.3% year-over-year, underpinned by strategic cost reductions and enhanced operational efficiencies. This gained traction down the profit and loss statement, with the adjusted earnings before interest and taxes (EBIT) margin rising to 17.7% from 13.1%, and the adjusted earnings before interest, taxes, and amortization (EBITA) margin climbing to 18.3% from 14.1% compared to the previous year.
Despite these positive margin developments, the company's free cash flow before mergers and acquisitions (M&A) activities decreased slightly to 14.9 billion SEK from 15.8 billion SEK in the same quarter the prior year. At the fiscal year-end in 2025, Ericsson maintained a strong net cash position totaling 61.2 billion SEK, reflecting solid liquidity and financial robustness.
CEO Börje Ekholm emphasized that the company achieved organic growth in spite of a flat Radio Access Network (RAN) market environment. This was driven by advances in mission-critical network solutions, development in 5G core capabilities, and growth in the Enterprise sector.
Ekholm highlighted that sustained operational measures implemented over recent years have led to consistent margin expansion, marking nine straight quarters of year-over-year adjusted EBITA margin improvements. The firm continues to channel investments into research and development focused on maintaining its technological edge, especially in areas such as AI-native, secure, and autonomous mobile networking technologies.
Furthermore, the CEO pointed to the company's strong generation of free cash flow and a solid balance sheet as foundations supporting a planned increase in shareholder returns. The board intends to propose a heightened dividend of 3.00 SEK per share and seek approval for a share buyback program amounting to 15 billion SEK.
Looking forward into 2026, Ericsson's outlook indicates a forecast of a flat RAN market but anticipates growth in mission-critical and Enterprise areas. The company plans to ramp up investments in defense-related technologies during the year while concurrently refining its cost structure to bolster margins and cash flows.
Regarding near-term quarterly expectations, Ericsson projects that Network sales growth will reflect typical seasonal patterns based on a three-year average. In contrast, sales in Cloud Software and Services are predicted to fall short of the seasonality average observed over the past three years. Supplementing this, the company estimates that the adjusted gross margin for Networks in the upcoming quarter will range between 49% and 51%, factoring in current tariff assessments.
Following the earnings announcement, Ericsson's stock traded 7.10% higher in premarket sessions, reaching $10.26 and approaching a 52-week high around $10.35, underlying investor optimism toward the quarterly results and future prospects.