Weak Yen Drives Sony’s First Profit in Years

Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

One of the main news stories over the last few months has been the devaluation of the yen, which contributed greatly to the 40% surge in Japanese equities so far this year. This week, the dollar popped over 100 yen. A weak yen benefits Japanese exporters, as their products become cheaper abroad. Japanese electronics giant Sony (NYSE: SNE) has been struggling over the last few years, posting losses since 2009. However, the company is now finally back in the black, helped by the weaker yen and cost cutting initiatives.

Return to Profitability

While the quarterly and full-year profit reported by Sony was not particularly large, the fact that the company is turning a profit again is certainly encouraging. For the quarter, the company earned $948 million, and the full-year figure came in at $434 million. The annual profit was up from a monster loss of $5.7 billion in the previous year, and beat the company’s expectations as well as the analyst consensus.

Sales for the quarter rose some 8% to $17 billion, of which roughly $1.8 billion can be attributed to positive exchange rate effects. Cost-cutting measures, including the sale of some of the company’s real estate, boosted the company’s profitability, whereas revenue benefited from an especially strong performance in its financial services division and its film business.

The biggest problem for Sony at the moment is the revitalization of its electronics business, which is still proving to be a challenge. The television segment saw a 30% decline in sales for the eighth consecutive year of losses, and camera sales also slowed. However, the company is committed to returning to profitability in electronics, with several executives forgoing bonuses in order to support the cause. For the current fiscal year, Sony expects a profit of $505 million, with a 10% increase in sales.

Outpaced by Rivals

Sony used to be one of the world’s main electronics companies, if not the number one. However, in the last decades it has seen its market share trampled by competitors. Apple’s (NASDAQ: AAPL) wildly popular iPod and iPhone have all but killed Sony’s portable device business. These products propelled Apple to a household name and the world’s primary electronics company, but even this giant seems to be losing some of its shine lately, having been overtaken by Samsung (NASDAQOTH: SSNLF) in the smartphone market. In their latest report, the company delivered results that were ahead of the consensus, but still down substantially from the year before. The company now hopes to revive interest in its stock by increasing its dividend and expanding its share repurchase program.

Korea-based Samsung now appears to be challenging for the pole position in global electronics. The firm, which produces everything from televisions to tablets, phones, cameras, PC peripherals, and laptops, now has the largest market share in the smartphone arena, and is still growing. The company’s enormously popular Galaxy phones have flooded the market, driving much of its $7.9 billion operating profit for the first quarter. Also the world’s largest producer of televisions, the firm reported decreasing demand for these products due to a seasonal slump, but expects sales to pick up in the second half of the year.

Valuations and Metrics

In no small part due to its poor performance, Sony is a very inexpensive stock at the moment. While the P/E ratio is currently negative, the price-to-book is only 0.71. For comparison, Apple trades at 3.21 times book value and Samsung at 1.59. The price-to-sales is even lower at only 0.21. The company’s operating margin is fairly grim at around 0.5% and the return on equity is also poor at -9.71%. On the whole, the company’s fundamentals aren’t too strong.

The Bottom Line

The struggling Japanese electronics giant Sony has finally managed to turn things around for the fiscal year, delivering its first full-year profit in five years. These results were in no small part due to the devaluation of the yen, although cost cutting measures also helped the company’s bottom line. However, it remains to be seen how this turnaround project plays out over this fiscal year, and the company will have to keep turning a profit in order to restore shareholder confidence.

Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, “Apple Will Destroy Its Greatest Product.” Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.


Daniel James has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus