EPSON announces third quarter financial results

Summary

Q3 Results (YoY)

¥361.2B in revenue (+¥65.1B), ¥31.2B in business profit (+¥4.0B), ¥11.0B in profit for the period (-¥13.9B)

• Supply constraints eased, and unit sales increased. Higher selling prices helped offset soaring materials and logistics costs.
• While revenue and business profit benefitted from exchange rate volatility, profit for the period was hurt by foreign exchange losses caused by a weakening of the dollar.
• Revenue fell short of the internal plan, which served as the basis for the previous outlook (Oct. 28), but business profit slightly exceeded it.

FY2022 full-year financial outlook (vs. 10/28 outlook)

¥1,330.0B in revenue (-¥60.0B), ¥95.0B in business profit (-¥5.0B), ¥67.0B in profit for the period (-¥15.0B)

• The latest outlook reflects the presumption of a further deceleration of the global economy due to factors such as a cooling of consumer spending in the wake of ongoing inflation and the effects of Covid in China.
• Profit for the period reflects second-half foreign exchange losses, etc.

The  third-quarter results were negatively impacted by high materials and logistics costs but benefitted from an easing of semiconductor supply constraints compared to the same period last year.

Despite the challenges, Epson recorded both revenue and profit growth due in part to higher selling prices and exchange rate volatility.

The full-year outlook for revenue, business profit, and subsequent levels of profit was lowered on the presumption of a further deceleration of the global economy due to factors such as a cooling of consumer spending in the wake of ongoing inflation and the effects of Covid in China.

Fiscal Highlights

Revenue was ¥361.2 billion, up ¥65.1 billion year on year.

Business profit was ¥31.2 billion, up ¥4.0 billion.

Foreign exchange effects had a ¥43.7 billion positive impact on revenue and a ¥1.0 billion positive impact on business profit.

Profit for the period was ¥11.0 billion, down ¥13.9 billion from the same period last year.

This was chiefly because, whereas we recognised ¥2.1 billion in tax returns at our overseas affiliates under other operating income in the same period last year, this quarter we recorded foreign exchange losses under other operating expenses and finance costs due to the weakening of the dollar during the period.

Revenue fell short of the internal plan, which served as the basis for the previous outlook, due to a shortfall in unit sales, but business profit slightly exceeded the plan thanks to pricing measures and cost control.

Printing Solutions

Revenue was ¥249.0 billion, up ¥43.7 billion year on year.

Segment profit was ¥27.3billion, down ¥3.5 billion.

In office & home printing, revenue increased but profit decreased.

Inkjet printer unit sales increased by 20% year on year, the result of an easing of supply constraints that allowed us to extend sales of high-capacity ink tank printers as well as ink cartridge printers.

Inkjet printer revenue sharply increased as a result of our pricing

measures and foreign exchange effects.

Ink revenue increased by 2%. Although ink cartridge sales declined

as at-home print demand returned to normal, increased sales of high-capacity ink bottles and foreign exchange effects pushed total ink revenue higher.

Office shared inkjet printer revenue increased due to the easing of supply constraints.

Business profit in office and home printing declined due to the strong dollar and soaring materials and logistics costs.

Revenue fell short of the internal plan due to a shortfall in inkjet printer unit sales, but business profit was in line with the plan thanks to pricing measures and cost control.

Commercial and industrial printing revenue and profit increased.

Revenue in the commercial & industrial inkjet printer finished products business increased, mainly in growth areas, though the increase was tempered by a cooling of markets due to the effects of Covid in China and the postponement of investment by customers in Europe and the Americas. Foreign exchange effects played a part in the increase.

Printhead sales business revenue grew, with strong interest from Chinese printer manufacturers that also export.

Small printers & other revenue increased in Europe and the Americas due to strong demand from the retail and food service industries and the easing of supply constraints.

Business profit increased on higher revenue, though it was tempered by soaring materials and logistics costs.

Both revenue and business profit were impacted by economic deceleration and fell short of the internal plan.

Visual Communications Manufacturing-related and Wearables

In visual communications, projector demand in the education markets of Europe and the Americas was firm, but unit sales growth was limited by some remaining supply constraints. Revenue was ¥60.1 billion, up ¥16.4 billion, owing to improvements in the model mix, pricing measures, and foreign exchange effects.

Segment profit grew by ¥5.6 billion, to ¥9.7 billion.

Revenue fell short of the internal plan, but business profit exceeded it owing primarily to pricing measures.

Revenue in manufacturing-related & wearables, buoyed by foreign exchange effects, reached ¥52.7 billion, an increase of ¥5.3 billion.

Manufacturing solutions revenue shrank mainly due to softness in the Chinese market especially for use in consumer electronics.

Wearable products revenue was flat year on year. Soft overseas markets negated consumer spending and demand from visitors to Japan, which were on an upward trajectory.

Microdevices and other revenue increased because even though demand contracted for some crystal devices, semiconductor demand remained firm and average unit prices rose.

Segment profit, driven by microdevices and helped by foreign exchange effects, rose by ¥1.5 billion, to ¥7.6 billion.

Revenue fell short of the internal plan, but business profit exceeded it due to cost containment.

Financial Outlook

Epson forecast revenue and business profit growth compared to the previous fiscal year.

 In comparison to the previous forecast, it has lowered the revenue outlook by ¥60.0 billion. It now stands at ¥1,330.0 billion. Also lowered is  the business profit outlook by ¥5.0 billion, to ¥95.0 billion.

There is a downwardly revised outlook for profit for the period to ¥67.0 billion, a ¥15.0 billion decease, a reflection of second-half foreign exchange losses and other factors.

Given the recent situation, there is a revised fourth-quarter foreign exchange rate assumptions to 127 yen to the US dollar and 138 yen to the euro.

Exchange rate volatility from the previous fiscal year is expected to have an approximately ¥135.0 billion positive effect on revenue and a ¥9.0 billion positive effect on business profit.

Also revised is the previous foreign exchange assumptions to reflect a weaker dollar. This change will have an approximately ¥10.0 billion negative impact on revenue, but an approximately ¥2.0 billion positive impact on business profit.

Changes in the business environment

For demand, the heightened risk of a global economic slowdown due to factors such as inflation, which will cause consumer spending to cool, and the effects of Covid in China.

Third-quarter inkjet printer sell-through in North America was firm, but has factored into the outlook the move by channels to keep inventories in check.

Supply constraints caused by semiconductor shortages and logistics disruptions have been easing as forecasted from the third quarter.

For costs, the pace of increases in materials costs is slowing, and Epson is containing logistics costs by increasing loading efficiency and other measures.

Shareholder Returns

Annual dividend to be increased to 72 yen with the addition of a 10-yen payout to commemorate the company’s 80^th anniversary

In May of last year, it was announced that Epson would repurchase up to ¥30.0 billion in treasury shares. The limit was reached this January.

All treasury shares acquired in the period are planned to be cancelled.