Konica Minolta production print units grow at eight percent

FOREX Hurts Financials

Konica Minolta, Inc. (KM) reported Q316 financial results on Tuesday, January 31, 2017 (see Figures 1, 2, and 3 below).

  • Q3 revenue of ¥237.7 billion (B) ($2.17B), declined 7% (YTY), 3% increase w/o FOREX impact
  • Q3 operating profit of ¥15.9B ($145.4M), increased 19% (YTY), 65% increase w/o FOREX impact
  • Q3 Business Technologies revenue of ¥6 ($1.75B), decreased 7%, 4% increase w/ FOREX impact
  • Q3 Business Technologies operating profit of ¥12.0 decreased 28%, 7% increase w/o FOREX impact
  • KM maintained its previous earnings forecast, unchanged since it’s announcement on July 28, 2016
  • FY16 revenue forecast of ¥1,030B, FY16 operating profit forecast of ¥55B

Our View

Konica Minolta (KM) performed well despite the effect of FOREX. Revenue increased for the company and for its Business Technology Business (BTB). With FOREX the firm and BTB displayed decreases in revenue and operating profit.

BTB is comprised of Office services and Commercial and Industrial printing. Office services is comprised of IT service solutions and Office products. IT services reported it had won some major deals in the U.S. by expanding its content management services (CMS) that includes document digitization support services. The Group’s hybrid-sales that links together IT services and its Office products allows for increased sales due to synergy between both units. BTB noted an accelerating sales shift in A3 color models toward segment 4/5.

In its Commercial and industrial printing, its bizhub PRESS C1100 digital color printing system posted “solid sales” in North America, China, and Asia. Confirming what Seiko Epson had reported for inkjet cartridge units, KM mentioned that inkjet printheads sales softened due to deteriorating market conditions.

Before moving on to KM’s FY16 earnings forecast, a brief note about regarding KM’s operating margin shown in Figure 3. This is the first time where the margin was higher for KM than for BTB within the since Q1 2013. The reason is that in KM’s Industrial Business the company posted a profit of ¥7.8B ($71.4M) in patent-related income due to the “implementation of management measures aimed at maximizing the value of intellectual property.” This came despite reduced revenue in its Industrial Business.

Finally, using a foreign exchange rate of USD: ¥110 (versus 9 month exchange rate of USD: ¥106.63), KM maintained its previous earnings forecast with a focus on achieving 13 percent profit YTY. It now has less than two months to achieve this profit and based on past experience, KM will do so.

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