Telefonaktiebolaget LM Ericsson (ST:ERICb) said on Tuesday that second-quarter profit surpassed market expectations, although net sales undershot analyst forecasts as weaker patent-licensing receipts weighed on the top line.
Reported net sales for the quarter were 52.69 billion Swedish crowns, down 6% from 56.13 billion crowns a year earlier and below the 53.71 billion crown analyst consensus compiled by Infront. Organic sales - which exclude currency movements and acquisitions - were down 1%. Management attributed the organic decline largely to lower patent-licensing revenue following a one-off benefit from a partial intellectual property rights (IPR) settlement in the prior-year quarter. Organic sales nonetheless increased in three of Ericsson's four market areas.
Against the top-line shortfall, Ericsson's margin metrics outperformed expectations. Adjusted gross margin rose to 48.4% from 48.0% a year earlier, topping the highest analyst estimate of 48.2%. Adjusted earnings before interest, tax and amortization (EBITA) amounted to 6.9 billion crowns, above the 6.71 billion crown consensus. The adjusted EBITA margin came in at 13.1%, ahead of the 12.5% consensus and only slightly below the 13.2% margin posted in the prior-year quarter.
On the earnings line, net income declined 12% to 4.1 billion crowns from 4.6 billion crowns a year earlier, while diluted earnings per share fell to 1.22 crowns from 1.37 crowns. Free cash flow before mergers and acquisitions contracted sharply - an 85% drop to 0.4 billion crowns from 2.6 billion crowns in the year-ago period.
Patent-licensing revenue for the quarter was 3.4 billion crowns, down from 4.9 billion crowns, reflecting the absence of the one-off settlement benefit that had been recorded in the second quarter of 2025.
"Our Q2 results underscore the strength of our portfolio and disciplined execution," President and Chief Executive Börje Ekholm said in a statement. Ekholm added that the company had taken measures during the quarter to mitigate component cost inflation but that it expects "some pressure on Networks adjusted gross margin in Q3 due to higher volumes of network rollout projects."
Looking ahead to the third quarter, Ericsson forecast that Networks sales growth will be above its three-year average seasonal pattern. The company guided adjusted gross margin for Q3 to a range of 48% to 50%.
During the quarter Ericsson returned 8.2 billion crowns to shareholders, of which 3.2 billion crowns was delivered through share repurchases.
Separately, Ericsson announced leadership succession plans: Ekholm will retire as chief executive effective Sept. 30, 2026, and will serve as an executive adviser to incoming President and CEO Per Narvinger until June 15, 2027.
This release highlights a combination of margin resilience and top-line pressure driven by patent revenue timing, a material cash flow shift compared with the prior year, and a defined CEO transition timetable.