Nikon's (NINOY) Revenues Drop Y/Y In Q3 Earnings, Shares Down

Shares of Nikon (OTC:NINOY) have declined 8.4% to date, following the announcement of third-quarter fiscal 2019 results on Feb 7.

The plunge can be attributed to lowered revenue guidance for the imaging business, due to struggling camera and chip equipment operations that have been hit by falling demand in China.

Third-quarter profit attributable to owners of the parent increased 9.5% year over year to ¥17.9 billion. However, revenues of ¥190.5 billion ($1.69 billion) decreased 3.3% in a year, primarily due to weak performance by the Imaging Products segment.

Moreover, increasing uncertainty over the resolution of the U.S.-China trade dispute has remained an overhang on shares.

Additionally, per Reuters, Foxconn has requested Nikon to delay the installation of equipment at its new liquid crystal display (LCD) plant in the southern Chinese city of Guangzhou. The news also spooked investors, dragging down shares.

Notably, the stock has lost 22.9% compared with the industry’s decline of 7.9% in the past year.

Segment Details

Imaging Products (47.5% of revenues) revenues declined 22% year over year to ¥90.5 billion. Stiff competition in the shrinking entry and mid-level DSLR markets have hurt volume growth. This was partially offset by solid high-end camera sales, driven by the launch new ML products.

Precision Equipment (34.5% of revenues) revenues surged 34.5% from the year-ago quarter to ¥64.7 billion. Growth was driven by solid volume increase in FPD Lithography business. Improved product mix drove Semiconductor Lithography business’ top-line growth.

Healthcare (8.6% of revenues) revenues increased 16.4% from the year-ago quarter to ¥16.3 billion. Growth was driven by strong sales of both biological microscopes and retinal imaging diagnosis devices, primarily in international markets.

Industrial Metrology and Others (10% of revenues) revenues increased 1.1% to ¥19 billion.

Operating Details

In third-quarter fiscal 2019, operating profit increased 19% year over year to ¥21.9 billion. However, operating margin contracted 220 basis points (bps) to 11.5%.

Imaging Products segment operating profit plunged 46.9% year over year to ¥8.6 billion, primarily attributed to lower camera sales volume and higher costs.

Precision Equipment operating profit surged 107.1% from the year-ago quarter to ¥17.4 billion.

Healthcare business’ operating loss was ¥200 million compared with a loss of ¥100 million in the year-ago quarter.

Industrial Metrology and Others segment operating profit jumped 31.3% to ¥2.1 billion.

Balance Sheet & Free Cash Flow

As of Dec 31, 2018, cash and cash equivalents were ¥415.6 billion compared with ¥415.2 billion on Sep 30.

Free cash flow declined 45.3% year over year to ¥16.9 billion.

Guidance

For fiscal 2019, revenues are now projected to be ¥720 billion, down ¥20 billion from the previous guidance. While Imaging Products revenues are now expected to decline ¥15 billion, Precision Equipment is anticipated to decrease ¥5 billion.

Research & development (R&D) expenses are expected to increase from ¥60.7 billion in fiscal 2018 to ¥67 billion in fiscal 2019.

Operating profit is now estimated to increase ¥6 billion from the previous guidance to ¥80 billion. Profit attributable to owners of the parent is now projected at ¥59 billion, up ¥6 billion.

Free cash flow is still projected to be ¥60 billion, down from ¥90.2 billion in the previous year’s quarter.

Segment wise, Imaging Products’ fiscal 2019 revenues are now expected to be ¥305 billion. Operating profit is now expected to be ¥25 billion, down ¥6 billion from the previous guidance.

Precision Equipment business’ revenues are now expected to be ¥277 billion. Large-sized panel systems sales growth is expected to exceed the sales drop of mid-to-small sized panel systems. Operating profit is now expected to increase ¥11 billion to ¥79 billion.

Healthcare business’ revenues are still anticipated to increase ¥6.2 billion to ¥63 billion. Operating loss is projected to be ¥3 billion.

Industrial Metrology and Others revenues are expected to increase ¥1.8 billion to ¥75 billion. Operating profit is expected to be ¥6 billion.

Zacks Rank & Stocks to Consider

Currently, Nikon has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer and technology sector are ASGN Inc (NYSE:ASGN) , Wix.com (NASDAQ:WIX) and Cogent Communications Holdings (NASDAQ:CCOI) . All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ASGN, Wix.com and Cogent are set to report quarterly results on Feb 12, Feb 20 and Feb 21, respectively.

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