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Sony (SNE) Q4 Earnings Lag Estimates, Business Hit by COVID-19

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Sony Corporation (SNE - Free Report) reported unimpressive fourth-quarter fiscal 2019 results, with the top and the bottom line missing the respective Zacks Consensus Estimate.

Net Income

In the fiscal fourth quarter, Sony’s net income (GAAP basis) plunged 85.7% year over year to ¥12.6 billion or ¥10.10 per share ($115.6 million or 9 cents per share), primarily due to lower operating income coupled with lower other income and higher other expenses. In fiscal 2019, net income was ¥582.2 billion or ¥461.23 per share compared with ¥916.3 billion or ¥707.74 per share in fiscal 2018. 

Quarterly adjusted net income came in at ¥12.6 billion compared with ¥99.4 billion in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by 21 cents.

Sony Corporation Price, Consensus and EPS Surprise

 

 

Revenues

Quarterly total operating revenues were down 17.8% year over year to ¥1,748.7 billion ($16,042.6 million). The downside was caused by decline in the Financial Services, Electronics Products & Solutions (EP&S) and Game & Network Services (G&NS) segment sales. The top line lagged the consensus estimate of $17,002 million.

In fiscal 2019, revenues declined 4.7% year over year to ¥8,259.9 billion. This was caused by lower sales in the EP&S and G&NS segments, partially offset by increase in sales in the Imaging & Sensing Solutions (I&SS) segment.

Quarterly Segment Results

Sales in G&NS declined 12.9% year over year to ¥433.6 billion due to fall in PlayStation4 hardware sales, game software sales and the negative impact of foreign exchange rates. The segment’s operating income was ¥46.2 billion compared with ¥63.9 billion in the prior-year quarter. The company’s PlayStation5 is on track for launch in this holiday season.

Sales in Music fell 0.7% year over year to ¥211.4 billion due to lower sales for Fate/Grand Order, a mobile game application. This was partially offset by higher sales for Music Publishing resulting from the consolidation of EMI and higher sales for Recorded Music owing to an increase in streaming revenues. The unit’s operating income was ¥30.3 billion, which improved from ¥21.8 billion in the prior-year quarter. The company is facing delays in new music due to the impact of COVID-19 on recording activities.

Sales in Pictures increased 11.9% year over year to ¥329.1 billion led by higher worldwide theatrical revenues and licensing revenues for Television Productions. The segment’s operating income was ¥23 billion compared with ¥27.1 billion in the prior-year quarter due to increase in development expenses and higher costs as a result of an increase in the number of new programs in Television Productions. The company is facing delays in theatrical releases due to the closure of movie theaters and production delays.

EP&S sales came in at ¥363.4 billion, down 24.8% on a year-over-year basis. This was due to decline in smartphone and television unit sales and impact of foreign exchange rates. The segment’s operating loss was ¥59.5 billion compared with an operating loss of ¥38.9 billion in the year-ago quarter. The company is facing a supply shortage due to reduced production at factories. There’s a delay in production due to component shortages. Also, retail sales have fallen due to the closure of stores globally.

Sales in I&SS were up 20.2% year over year to ¥231.2 billion on significant increase in sales of image sensors for mobile products. The segment’s operating income was ¥34.5 billion compared with ¥20.3 billion in the prior-year quarter. The company’s image sensor manufacturing facilities are operating as usual. However, it continues to monitor a slowdown in the smartphone market.

Financial Services sales nosedived 56.7% year over year to ¥186.4 billion due to decline in revenues at Sony Life. The segment’s operating income was ¥12.1 billion compared with ¥43.8 billion in the year-ago quarter. This reflects deterioration in valuation gains and losses on securities at Sony Bank. All in-person sales activity of the life planners at Sony Life has stopped and there’s a potential impact on results due to fluctuations in the financial market.

All Other sales were down 43.7% to ¥40.7 billion. Operating loss was ¥4.2 billion compared with an operating loss of ¥22.6 billion in the prior-year quarter.

Other Details

Quarterly total expenses were ¥1,716.5 billion, down 16.1% year over year, primarily due to lower cost of sales and financial services expenses. Overall operating income was ¥35.4 billion, down 57.2%.

Cash Flow & Liquidity

In fiscal 2019, Sony generated ¥1,349.7 billion of net cash from operating activities compared with ¥1,258.7 billion in fiscal 2018.

As of Mar 31, 2020, the electronics and media company had ¥1,512.4 billion ($13,988.2 million) in cash and equivalents with ¥635 billion ($5,873.1 million) of long-term debt compared with the respective tallies of ¥1,470.1 billion and ¥568.4 billion a year ago.

FY20 Outlook

Due to uncertainties related to the COVID-19 pandemic, the Tokyo, Japan-based company is unable to determine its future earnings. Sony plans to make an announcement once it makes a reasonable estimate. Based on the current situation, it expects aggregate operating income for fiscal 2020 to be at least 30% lower than the level achieved in the prior fiscal.

Conversion rate used:

¥1 = $0.009174 (period average from Jan 1, 2020 to Mar 31, 2020)

¥1 = $0.009249 (as of Mar 31, 2020)


Zacks Rank & Stocks to Consider

Sony currently has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader sector are Turtle Beach Corporation (HEAR - Free Report) , Ooma, Inc. (OOMA - Free Report) and Plantronics, Inc. (PLT - Free Report) . While Turtle Beach sports a Zacks Rank #1 (Strong Buy), Ooma and Plantronics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Turtle Beach has a trailing four-quarter positive earnings surprise of 46.4%, on average.

Ooma has a trailing four-quarter positive earnings surprise of 124%, on average.

Plantronics has a trailing four-quarter positive earnings surprise of 27.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the last four quarters.

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