Canon Operating Profit Drops 39 Percent

Blames Weak Printer and Camera Sales

Canon, Inc. announced its first quarter 2016 results on April 26, 2016 (see Figure 1, Figure 2 and Figure 3 below).

  • Canon total Q1 sales of  ¥2 billion ($7.05 B), down 7 percent year-to-year (YTY)
  • Office Business Unit Q1 Sales of ¥3B ($4.02B), down 14 percent
  • Gross Profit ratio of 50.8 percent, down only 0.3 points
  • Operating Profit of ¥0 B ($353.7M), down 39 percent
  • Revised Full-year outlook from prior outlook:
    • Net sales from:               ¥3,850B to ¥3,600B, decrease of 6.5 %
    • Operating profit from:     ¥360B to ¥300B, decrease of 16.7 %

2016 0426 Fig 1 Canon earnings

2016 0426 Fig 2 Canon sales trend

2016 0426 fig 3 canon & office OPM

Our View

For the past few years we have been concerned that Canon had not been corralling its expenses for a situation like what happened this quarter, however, despite the negative impact of currency exchange rates with the appreciation of the yen, Canon’s cost-cutting activities and efforts saved the day.

Multifunction devices (MFDs) and laser printers reside in the Office Business Unit. Canon reported that demand for its office MFDs increased YTY including monochrome models. Color MFDs, particularly SOHO color A3 models had strong Q1 sales including its imageRUNNER ADVANCE C3300 series. Laser printer unit sales volume decreased rather significantly.

Canon suggested that a change of strategy was needed and instead of selling low-end models just to sell them, it wanted to ensure profitability by selling high-value-added models which would lead to more printing and more consumable sales. Overall, color MFDs increased 11 percent (YTY) and monochrome MFDs decreased 6 percent (YTY) in unit shipments with a total increase of 1 percent. Color laser printers decreased 14 percent (YTY), monochrome laser printers decreased 22 percent (YTY) for an overall decrease of 21 percent in laser printers shipments. Canon projects an 8 percent growth (YTY) in MFDs and an 11 percent decline (YTY) for the remainder of 2016.

Inkjet resides in the Imaging System Business Unit along with digital compact cameras and interchangeable-lens digital cameras. Inkjet sales in the developed markets of Europe, U.S., and Japan contributed to growth and the continuous ink supply system (CISS) printers had strong demand in Asia. Overall, the sluggishness in emerging markets led to a 1.7 percent decline (YTY) in unit shipments during the quarter with a projection of no growth or decline in inkjet shipments (YTY) for 2016.

Taking into account the yen appreciation, sluggishness of the of the market environment in China and emerging markets, and what Canon believes as a saturation in the MPS market, the company expects full-year net sales and profits to be below that of 2015. Canon’s acquisition of Toshiba’s medical unit shows that Canon is looking to diversify and reducing its reliance on cameras.

                              Prior Outlook      Revised Outlook      Delta

Net sales               ¥3,850B                   ¥3,600B                         (6.5%)

Operating Profit     ¥360B                       ¥300B                            (16.7%)

NI to Canon            ¥230B                       ¥200B                            (13.0%)

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