A Look at Latest Quarter Financials for top Printer Manufacturers
Now that the latest quarter financials have been released by the top printer manufacturers, Photizo has published an assessment of the financials from each of the top printer manufacturers including Xerox, Canon, HP, Ricoh, Konica Minolta, and Epson. This News Byte provides a quick summary of the latest quarter results from a revenue and operating margin standpoint.
First, it is almost impossible to have a perfect apple to apples comparison between printer manufacturers’ financials since the companies have different financial years and each company is impacted by exchange rates to varying degrees. Japanese companies tend to have financial years starting April 1 and ending March 31 (although Canon is on a calendar fiscal year) while most US based companies are on a calendar year financial calendar but HP’s fiscal year starts November 1st and ends October 31st. Since the overall printing business is somewhat seasonal, looking at revenue and operating profit changes for the latest quarter versus the previous quarter (referred herein as sequential quarters) and for the latest quarter versus the same quarter one year ago is very helpful to try to interpret the numbers.
Many of the printer manufactures report their printing business in multiple buckets. For example, Canon reports their laser printer business under Office Printing while their inkjet printer business is under their Imaging Systems Business.
As you can see from the table below, it makes a huge difference as to whether you are looking at sequential quarters or at the same quarter year to year. The quarters below represent the printer manufacturers’ latest financial quarter released in their fiscal year. For example, HP recently released their Q1 2017 results for their quarter ending January 31, 2017. For Ricoh, KM, and Epson, their Q3 2016 ended on December 31, 2016.
There are a few key takeaways from this data. First, if you look at the latest quarter revenues and compare to the same quarter one year ago, in all cases, the revenue is down ranging from 3.4% for HP to 10.4% for Ricoh. Given the ongoing decline in printer shipments and in page volumes, this is not surprising to many folks in the industry. More alarming is the decline in quarterly operating profits when looking at the latest quarter versus the same quarter one year ago. These declines range from a decline of 9% for HP to as high as 40.9% decline for Ricoh. In many, if not all cases, these declines would be less if the impact from changing exchanges rates were removed which could be as high as 9-10% for Japanese Companies (between 2015 and 2016). Even with this adjustment, the declines in operating profit are alarmingly high however. A key metric is operating margin % of revenue which ranges from 6% (KM and Ricoh) to 16% (HP and Epson).
Why are operating profits falling off compared to revenues? A big part of the reason has to do with the fact that not all printer manufacturers have restructured sufficiently to address the realities of the declines in our industry. There are also the impacts of declining average sales prices and to an unfavorable mix of low margin and high margin products. For example, although HP’s shipments of consumer printers were up 7% and unit shipments of commercial printers were up 2% from the previous quarter, actual printer revenue was down 3% year over year. More concerning is the decline in supplies revenue of 3%. HP makes more margin on their commercial printers and on supplies than they do on consumer hardware. So, mix accounts for much of the decline in operating margins.
What can manufacturers do? First and foremost is to restructure based on the realities of the industry and to become much more efficient in operations, R&D, and sales/marketing (including channels). As some printer manufacturers are already doing, look outside the traditional print on paper box whether 3D or printing on durable goods i.e. bottles, cans, containers etc. since the packaging market is a growth market. Markets such as label printing, ID card printing, wide format printing, bar code printing continue to show growth and opportunities for high margin business. Investing in and growing the software and services businesses (i.e. MPS, workflow, document security) will help offset declines in hardware will help as well. Preventing continued erosion of the supplies business which can represent 70%+ of total printer revenue (and a higher percentage of profits) should be a top priority for all printer manufacturers.