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Nikon Corporation’s (NINOY - Free Report) fiscal 2017 earnings declined significantly over the previous fiscal year, as the company generated a net loss of ¥7.1 billion ($65.1 million).
The camera maker had announced a major restructuring plan in second-quarter fiscal 2017, which included reassigning over 1,500 employees and focusing on “high-value” cameras. Nikon recorded losses from inventory write-downs/write-offs in the Semiconductor Lithography business as restructuring expenses, which resulted in the net loss. An increase in tax expenses arising from tax effects also hurt the bottom line.
However, operating income increased 61.1% year over year to ¥51 billion, supported by strong performance in the Precision Equipment businesses.
Inside the Headlines
In fiscal 2017, Nikon’s net sales fell 8.6% year over year to ¥748.9 billion ($6.9 billion). The top line was positively impacted by increase in unit sales from FPD and Semiconductor lithography, which was more than offset by the impact of adverse foreign exchange rates and decline in digital cameras unit sales.
For the fiscal, sales for the Precision Equipment Business surged 38.5% year over year to ¥247.6 billion ($2.3 billion).The unit enjoyed remarkable growth in the FPD Lithography System field, which benefited from the extension of capital investments. Capital investments in the semiconductor-related field also showed strong performance. Operating income at the segment rose to a whopping ¥51 billion compared to just ¥9.6 billion in the prior year.
However, the Imaging Products Business witnessed a steady decline in both sales and profits, as the top line shrunk 26.4% over fiscal 2016 to ¥383 billion ($3.5 billion). The unit’s performance was affected due to the shrinking digital camera market and negative impact of foreign exchange translation. In addition, the 2016 Kumamoto earthquake disrupted the suppliers, which affected this unit’s operations as well. Operating income at the segment also fell to ¥27.7 billion, down 39.4% from ¥45.7 billion in the year-ago period.
The Instruments Business also displayed negative growth, with the top line coming in at ¥73.4 billion ($673.4 million), down from sales of ¥77.2 billion recorded last fiscal. The microscope-related field’s performance was weak and adverse foreign currency translation impact further hampered revenues. Further, in the industrial metrology field, the company recorded poor sales due to sluggish recovery in capital investments. The segment recorded an operating profit of ¥0.3 billion compared with ¥2.8 billion in the prior fiscal year.
The new Medical Business posted sales of ¥20.2 billion ($185.3 million) in the fiscal, up from ¥18.3 billion in the year-ago period. Optos Plc's retinal diagnostic imaging equipment exhibited solid performance, which drove revenues. This segment also recorded an operating loss of ¥4.5 billion, slightly narrower than the ¥4.6-billion loss in the prior year.
Lastly, the Other Businesses segment net sales remained flat year over year at ¥24.4 billion ($223.8 million).
Liquidity & Cash Flow
As of Mar 31, 2017, Nikon’s cash and cash equivalents were ¥319 billion ($2.9 billion), up from ¥251.2 billion recorded a year ago.
Long-term liabilities (which include Bonds and Long-term loans) totaled ¥141.5 billion ($1.3 billion), up from ¥110.4 billion a year ago.
In the fiscal third quarter, Nikon unveiled a plan to undertake company-wide structural reform, as it seeks to enhance its operational profitability and create value.The restructuring will help Nikon shift from a strategy pursuing revenue growth to one pursuing profit improvement.
The restructuring was prompted by the fact that Nikon has not been able to derive value from its existing businesses. Its Semiconductor Lithography Business Imaging Product business is still not profitable, while the Imaging Product Business has been grappling with a shrinking market and foreign exchange headwinds.
In light of the above, Nikon planned to discontinue the current "Medium-Term Management Plan Update." Instead, it has initiated a company-wide restructuring to help shift to a strategy which pursues profit growth instead of revenue growth.
The plan includes reassessment of the strategy of the Semiconductor Lithography and Imaging Product Businesses. Additionally, Nikon intends to optimize manufacturing, sales and R&D on a global basis and streamline & optimize its workforce. As part of the initiative, Nikon stated it will be declaring a voluntary retirement program for about 1,000 employees.
Extraordinary losses due to the restructuring came to about ¥49.8 billion and were booked in the fiscal year ending Mar 31, 2017.
Guidance
The company sees a gradual recovery trend in its end markets as both the U.S. and Europe enjoy steady personal consumption, after much turmoil in the aftermath of the UK’s decision to exit from the EU as well as the U.S. presidential election. Japan’s capital investment and personal consumption also seems to be on the road to recovery.
Incorporating the present market scenario, Nikon released its forecast for fiscal 2018. The company expects net sales to come at around ¥700 billion. Also, the guidance for operating profits is about ¥45 billion.
Nikon anticipates strong capital investments in the semiconductor-related field, which will drive growth in the Precision Equipment Business. However, sales in the Imaging Products Business are expected to be soft, as market slowdown continues and action camera sales remain weak. The industrial metrology businessis also contending with global market slowdown and restrained investments, which might hurt sales.
Our Take
Nikon has been suffering in recent times as its chip-making equipment business has been underperforming, as it struggles with slowing demand and stiff competition with overseas rivals. Further, adverse foreign exchange impact and supply disruptions caused by the Kumamoto earthquakes in Apr 2016 further dented operations for this company.
The Japanese precision instrument maker aims to downsize low-profitable operations and instead focus resources on medical equipment and other promising businesses.
Nikon currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the same space includeMKS Instruments, Inc. (MKSI - Free Report) , Ultra Clean Holdings Inc. (UCTT - Free Report) and Ultratech, Inc. . While MKS Instruments and Ultra Clean Holdings boast a Zacks Rank #1 (Strong Buy),Ultratech carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MKS Instruments has achieved an average positive earnings surprise of 22.2% in the trailing four quarters, beating estimates all through.
Ultra Clean Holdings has beaten estimates each time in the trailing four quarters, for an average positive earnings surprise of 28%.
Ultratech has a robust earnings beat history, having surpassed estimates strongly each time in the trailing four quarters, for an average positive earnings surprise of 58.5%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
Note: Exchange Rate: $1 = ¥108
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Nikon (NINOY) Posts Fiscal 2017 Loss, Revenues Remain Weak
Nikon Corporation’s (NINOY - Free Report) fiscal 2017 earnings declined significantly over the previous fiscal year, as the company generated a net loss of ¥7.1 billion ($65.1 million).
The camera maker had announced a major restructuring plan in second-quarter fiscal 2017, which included reassigning over 1,500 employees and focusing on “high-value” cameras. Nikon recorded losses from inventory write-downs/write-offs in the Semiconductor Lithography business as restructuring expenses, which resulted in the net loss. An increase in tax expenses arising from tax effects also hurt the bottom line.
However, operating income increased 61.1% year over year to ¥51 billion, supported by strong performance in the Precision Equipment businesses.
Inside the Headlines
In fiscal 2017, Nikon’s net sales fell 8.6% year over year to ¥748.9 billion ($6.9 billion). The top line was positively impacted by increase in unit sales from FPD and Semiconductor lithography, which was more than offset by the impact of adverse foreign exchange rates and decline in digital cameras unit sales.
For the fiscal, sales for the Precision Equipment Business surged 38.5% year over year to ¥247.6 billion ($2.3 billion).The unit enjoyed remarkable growth in the FPD Lithography System field, which benefited from the extension of capital investments. Capital investments in the semiconductor-related field also showed strong performance. Operating income at the segment rose to a whopping ¥51 billion compared to just ¥9.6 billion in the prior year.
However, the Imaging Products Business witnessed a steady decline in both sales and profits, as the top line shrunk 26.4% over fiscal 2016 to ¥383 billion ($3.5 billion). The unit’s performance was affected due to the shrinking digital camera market and negative impact of foreign exchange translation. In addition, the 2016 Kumamoto earthquake disrupted the suppliers, which affected this unit’s operations as well. Operating income at the segment also fell to ¥27.7 billion, down 39.4% from ¥45.7 billion in the year-ago period.
The Instruments Business also displayed negative growth, with the top line coming in at ¥73.4 billion ($673.4 million), down from sales of ¥77.2 billion recorded last fiscal. The microscope-related field’s performance was weak and adverse foreign currency translation impact further hampered revenues. Further, in the industrial metrology field, the company recorded poor sales due to sluggish recovery in capital investments. The segment recorded an operating profit of ¥0.3 billion compared with ¥2.8 billion in the prior fiscal year.
The new Medical Business posted sales of ¥20.2 billion ($185.3 million) in the fiscal, up from ¥18.3 billion in the year-ago period. Optos Plc's retinal diagnostic imaging equipment exhibited solid performance, which drove revenues. This segment also recorded an operating loss of ¥4.5 billion, slightly narrower than the ¥4.6-billion loss in the prior year.
Lastly, the Other Businesses segment net sales remained flat year over year at ¥24.4 billion ($223.8 million).
Liquidity & Cash Flow
As of Mar 31, 2017, Nikon’s cash and cash equivalents were ¥319 billion ($2.9 billion), up from ¥251.2 billion recorded a year ago.
Long-term liabilities (which include Bonds and Long-term loans) totaled ¥141.5 billion ($1.3 billion), up from ¥110.4 billion a year ago.
Nikon Corp. Price, Consensus and EPS Surprise
Nikon Corp. Price, Consensus and EPS Surprise | Nikon Corp. Quote
Restructuring Plan
In the fiscal third quarter, Nikon unveiled a plan to undertake company-wide structural reform, as it seeks to enhance its operational profitability and create value.The restructuring will help Nikon shift from a strategy pursuing revenue growth to one pursuing profit improvement.
The restructuring was prompted by the fact that Nikon has not been able to derive value from its existing businesses. Its Semiconductor Lithography Business Imaging Product business is still not profitable, while the Imaging Product Business has been grappling with a shrinking market and foreign exchange headwinds.
In light of the above, Nikon planned to discontinue the current "Medium-Term Management Plan Update." Instead, it has initiated a company-wide restructuring to help shift to a strategy which pursues profit growth instead of revenue growth.
The plan includes reassessment of the strategy of the Semiconductor Lithography and Imaging Product Businesses. Additionally, Nikon intends to optimize manufacturing, sales and R&D on a global basis and streamline & optimize its workforce. As part of the initiative, Nikon stated it will be declaring a voluntary retirement program for about 1,000 employees.
Extraordinary losses due to the restructuring came to about ¥49.8 billion and were booked in the fiscal year ending Mar 31, 2017.
Guidance
The company sees a gradual recovery trend in its end markets as both the U.S. and Europe enjoy steady personal consumption, after much turmoil in the aftermath of the UK’s decision to exit from the EU as well as the U.S. presidential election. Japan’s capital investment and personal consumption also seems to be on the road to recovery.
Incorporating the present market scenario, Nikon released its forecast for fiscal 2018. The company expects net sales to come at around ¥700 billion. Also, the guidance for operating profits is about ¥45 billion.
Nikon anticipates strong capital investments in the semiconductor-related field, which will drive growth in the Precision Equipment Business. However, sales in the Imaging Products Business are expected to be soft, as market slowdown continues and action camera sales remain weak. The industrial metrology businessis also contending with global market slowdown and restrained investments, which might hurt sales.
Our Take
Nikon has been suffering in recent times as its chip-making equipment business has been underperforming, as it struggles with slowing demand and stiff competition with overseas rivals. Further, adverse foreign exchange impact and supply disruptions caused by the Kumamoto earthquakes in Apr 2016 further dented operations for this company.
The Japanese precision instrument maker aims to downsize low-profitable operations and instead focus resources on medical equipment and other promising businesses.
Nikon currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the same space includeMKS Instruments, Inc. (MKSI - Free Report) , Ultra Clean Holdings Inc. (UCTT - Free Report) and Ultratech, Inc. . While MKS Instruments and Ultra Clean Holdings boast a Zacks Rank #1 (Strong Buy),Ultratech carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MKS Instruments has achieved an average positive earnings surprise of 22.2% in the trailing four quarters, beating estimates all through.
Ultra Clean Holdings has beaten estimates each time in the trailing four quarters, for an average positive earnings surprise of 28%.
Ultratech has a robust earnings beat history, having surpassed estimates strongly each time in the trailing four quarters, for an average positive earnings surprise of 58.5%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
Note: Exchange Rate: $1 = ¥108