Sony CEO Assures Profitability, Looks To Boost Pictures Unit

Sony Corporation’s (NYSE:SNE) CEO Kazuo Hirai emphasized his optimism about the entertainment and electronics giant’s strong gaming and semiconductor businesses in a Corporate Strategy Meeting earlier today, and assured investors that he expects the company’s operating profit to reach ¥500 billion ($4.5 billion at current exchange rates) in the fiscal year ending Mar 2018.

This is a level that the company hasn't achieved in over two decades. In fact, the CEO – Hirai – who took helm of the company five years ago acknowledged that the company has never experienced extended periods of profitability in the seven decades of its existence.

Sony saw an operating profit of ¥525 billion in fiscal 1997 — its highest till date. Moving forward, Hirai asserted that his goal is to maintain robust profitability in the years to come, and he has already implemented major restructuring. Sony has been offloading its assets to ensure profitability, including the Vaio personal computer business. The company plans to promote innovation in its consumer electronic business, while investing in fields like healthcare, artificial intelligence, virtual reality and robotics.

Encouragingly, the company started fiscal 2017 on a decent note, having gained 26.7% year to date — ahead of the Zacks categorized Audio/Video Home Products industry’s average gain of 24%.

Sony anticipates to generate overall operating income of ¥500 billion for the current year, of which the Pictures unit will likely contribute less than 8%. For perspective, the Music segment is projected to generate more than double that amount, and the Gaming unit, driven by the success of the PlayStation 4, more than four times the amount.

Hirai also said that the once-struggling television business has been witnessing a recovery, and the company will focus on high-growth regions, like Asia (especially India), to drive growth for the unit.

Sony’s Pictures business is undergoing a transformation, and the company intends to improve its performance and capitalize on the high margins of this unit.

Sales of Sony’s flagship – PlayStation 4 gaming console – have also bolstered the company's revenues, having outnumbered the sales of all of its previous versions. Hirai expects the cumulative sales of PS4 to reach 78 million in fiscal 2017.

Sony's problems have arguably stemmed from operating in so many diverse areas, which made it difficult for the company to do well across the board. Its lucrative chip business, which produces images sensors for mobile devices, was disrupted last year due to a series of earthquakes that hit Kumamoto.

However, it seems that this Zacks Rank #2 (Buy) company’s restructuring efforts will help generate sustainable profit, accelerate decision-making processes and reinforce business competitiveness, which bodes well for future growth.

Analysts have also become increasingly bullish on the company over the past month, as the Zacks Consensus Estimate for fiscal 2017 earnings trended up over the same time frame, from $2.20 to $2.24 on the back of one upward estimate revision versus none lower.

Sony Corp (T:6758) Ord Price and Consensus

Other Stocks to Consider

Other similarly-ranked stocks include Ubiquiti Networks, Inc. (NASDAQ:UBNT) , Sonus Networks, Inc. (NASDAQ:SONS) and Sierra Wireless, Inc. (NASDAQ:SWIR) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ubiquiti Networks has a solid earnings surprise history for the trailing four quarters, having beaten estimates thrice, for an average beat of 13.3%.

Sonus Networks has a striking earnings surprise history for the trailing four quarters, beating estimates all through for an average positive surprise of 57.6%.

Sierra Wireless has beaten estimates impressively thrice over the trailing four quarters, with an average positive surprise of 155.9%.

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