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Sony (SNE) Surpasses Q3 Earnings Estimates, Raises View

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Sony Corporation reported solid third-quarter fiscal 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate driven by strong holiday sales of gaming console and robust performance by the music business.

Net Income

Sony’s GAAP net income surged 62% year over year to ¥371.9 billion or ¥297.35 per share ($3,558.7 million or $2.84 per share), primarily attributable to an income tax benefit of ¥225.8 billion.

Adjusted net income came in at ¥343.9 billion compared with ¥216.2 billion in the year-ago quarter. Adjusted earnings per share in the reported quarter were ¥274.9 ($2.63), which comfortably beat the Zacks Consensus Estimate of 80 cents.

Sony Corporation Price, Consensus and EPS Surprise Sony Corporation Price, Consensus and EPS Surprise

Sony Corporation price-consensus-eps-surprise-chart | Sony Corporation Quote

Revenues

Quarterly consolidated operating revenues improved 9.5% year over year to ¥2,696.5 billion ($25,802.8 million) driven by a strong performance by Game & Network Services (G&NS) and Music segments, slightly offset by lower sales in Pictures and Imaging & Sensing Solutions (I&SS) segments. The top line surpassed the consensus estimate of $24,488 million.

Segment Results

G&NS sales grew 39.7% year over year to ¥883.2 billion, driven by an increase in game software sales as well as solid hardware sales led by the tremendous customer response of the PlayStation 5 (PS5) gaming console launch. The segment’s operating income improved to ¥80.2 billion from ¥53.5 billion owing to rise in software sales and higher profit margins of PS4 hardware.

Music sales increased 21.9% year over year to ¥264.5 billion due to higher sales for Visual Media and Platform, higher streaming revenues from recorded music and solid performance of mobile game applications. The segment’s operating income was ¥59.7 billion, up from ¥36.2 billion in the prior-year quarter due to higher sales.

Pictures sales tumbled 19% year over year to ¥191.1 billion. This was a result of a significant decrease in theatrical revenues due to theater closings on account of the COVID-19 pandemic and fall in revenues owing to lower home entertainment and television licensing sales. The segment’s operating income improved to ¥22.2 billion from ¥5.4 billion in the prior-year quarter due to lower marketing costs.

Electronics Products & Solutions (EP&S) sales remained almost flat at ¥649 billion as increase in sales of televisions due to higher value product mix was offset by decrease in unit sales of smartphones. The segment’s operating income was ¥105.8 billion compared with ¥80.3 billion in the year-ago quarter, thanks to improvement in the product mix.

I&SS sales were down 10.4% year over year to ¥266.9 billion due to decrease in sales of image sensors for digital cameras. The segment’s operating income was ¥50.4 billion compared with ¥75.2 billion in the prior-year quarter. This was due to lower sales, increase in R&D expenses, and higher depreciation and amortization charges.

Financial Services sales were up 4.4% year over year to ¥425.3 billion due to higher revenues from Sony Life. The segment’s operating income was ¥46.6 billion compared with ¥32.6 billion in the year-ago quarter led by improvement in foreign exchange gains and losses in U.S. dollar-denominated insurance

All Other sales remained almost flat at ¥72.5 billion. Operating income was ¥8.1 billion compared with ¥20.7 billion in the prior-year quarter.

Cash Flow & Liquidity

In the first nine months of fiscal 2020, Sony generated ¥1,087.5 billion of net cash from operating activities compared with ¥834.1 billion in the prior fiscal period.

As of Dec 31, 2020, the Japan-based company had ¥1,878 billion ($18,201.6 million) in cash and cash equivalents with ¥737.3 billion ($7,145.9 million) of long-term debt.

FY20 Outlook Raised

Sony has revised its forecast for consolidated results for the fiscal year ending Mar 31, 2021. It now expects operating revenues of ¥8,800 billion, up from the earlier forecasted figure (announced in October 2020) of ¥8,500 billion. This is due to higher-than-expected sales in the all the segments (except Pictures) driven by surging demand for video games, music and movies and immense popularity of PS5 gaming console amid COVID-19 induced lockdown and travel restrictions.

Operating income is estimated to be ¥940 billion, up from the previous expectation of ¥700 billion. This is due to expected increases in operating income in all the segments. Net income is projected to be ¥1,085 billion, up from the previous expectation of ¥800 billion.

Zacks Rank & Stocks to Consider

Sony carries a Zacks Rank #3 (Hold) at present. Some better-ranked stocks in the broader industry are Clearfield, Inc. (CLFD - Free Report) , Qualcomm Incorporated (QCOM - Free Report) and Sonim Technologies, Inc. (SONM - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Clearfield delivered a trailing four-quarter earnings surprise of 62.6%, on average.

Qualcomm has a long-term earnings growth expectation of 19.6%. It delivered a positive earnings surprise of 17.3%, on average, in the trailing four quarters.

Sonim pulled off a trailing four-quarter earnings surprise of 2.2%, on average.

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Conversion rate used:

¥1 = $0.009569 (period average from Oct 1, 2020 to Dec 31, 2020)
¥1 = $0.009692 (as of Dec 31, 2020)


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