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Sony (SNE) Q1 Earnings Beat Estimates, Revenues Rise Y/Y

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Sony Corporation (SNE - Free Report) reported first-quarter fiscal 2018 earnings per share of ¥174.80 ($1.60), up from the year-ago quarter figure of ¥62.70, on the back of robust revenue growth. Also, the bottom line surpassed the Zacks Consensus Estimate of $1.16 by 37.9%.

Inside the Headlines

Sony’s sales and operating revenues were up 5.1% year over year to ¥1,953.6 billion ($17.9 billion). Impressive performance by the company’s Game and Network Services (G&NS), Music and the Home Entertainment & Sound (HE&S) segments spurred top-line growth.

Sony Corporation Price, Consensus and EPS Surprise

 

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

Additionally, operating income came in at ¥195 million ($1,787 million), up 23.7% from the year-ago quarter. Robust improvement in the operating results of the G&NS, Music and Imaging Products & Solutions (IP&S) segments proved conducive to operating income.

Segmental Details

Sales at Game & Network Services surged 35.6% year over year to ¥472.1 billion ($4.3 billion). Increase in the PS4 software sales (including sales through the network) proved conducive to the segment.

Financial Services revenues were up 10.6% year over year to ¥335.2 billion ($3.1 billion). Significant increase in revenues at Sony Life and increase in insurance premium revenues boosted this segment’s sales.

Additionally, sales at IP&S were up 5.5% year over year to ¥164.2 billion ($1.5 billion). Improvement in product mix of still and video cameras and favorable foreign currency movements drove the segment.

Sales at Music jumped 7.6% to ¥181.5 billion ($1.7 billion) on a year-over-year basis during the quarter. The increase came on the back of growth in Visual Media and Platform sales driven by continued strong performance of “Fate/Grand Order” application. Also, Recorded Music sales were up driven by a continued rise in digital streaming revenues.

HE&S sales came in at ¥272.1 billion ($2.5 billion), up 5.9% on a year-over-year basis. The rise was driven by increase in the sales of televisions as well as rise in home audio and video sales.

Sales from Pictures decreased 14.9% year over year to ¥175.1 billion ($1.6 billion). The decline was primarily attributable to lower Television Productions sales due to lower licensing revenues and decrease in Media Networks sales.

Semiconductor sales in the fiscal first quarter decreased 1% year over year to ¥202.2 billion ($1.9 billion). Decline in sales of camera modules had a negative impact on this segment.

Mobile Communications (MC) sales declined 26.9% year over year to ¥132.5 billion ($1.2 billion) due to decline in unit sales of smartphones primarily in Europe and Japan.

Sales at All Other were down 24.1% to ¥82.9 billion ($0.8 billion).

Liquidity & Cash Flow

As of Jun 30, 2018, Sony’s cash and cash equivalents were ¥1,509.5 billion ($13,641.6 million) compared with ¥984.2 billion at the end of Jun 30, 2017.

As of Jun 30, 2018, long-term debt totaled ¥571.1 billion ($5,161.1 million) compared with ¥623.5 million as of Mar 31, 2018.

Guidance

Concurrent with fiscal first-quarter results, Sony provided guidance for fiscal 2018. Currently, the company expects total sales to be around ¥8,600 billion. It believes that impressive sales at the G&NS, Semiconductors and the Pictures segments will fuel top-line growth. Also, the company expects operating income to be around ¥670 billion.

Our Take

Sony’s battery business has been showing signs of weakness, and its camera module business too is likely to deteriorate in the near future. Also, high costs in relation to the transfer of the battery business is weighing on the company’s financials.

In addition, sales at the MC segment is declining due to a fall in unit sales of smartphones and increase in the price of key components. Intensifying competition in the smartphones domain is further weighing on profitability.

Zacks Rank & Stocks to Consider

Sony currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks are Activision Blizzard, Inc (ATVI - Free Report) , Polaris Industries Inc. (PII - Free Report) and Pool Corporation (POOL - Free Report) . While Activision Blizzard sports a Zacks Rank #1 (Strong Buy), Polaris Industries and Pool Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard surpassed estimates thrice in the trailing four quarters with an average beat of 27.98%.

Polaris Industries exceeded estimates thrice in the trailing four quarters with an average beat of 12.69%.

Pool Corporation surpassed estimates thrice in the trailing four quarters with an average beat of 7.75%.

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