Fujifilm Improves on Market Demand - Analyst Blog

Fujifilm Holdings Corporation (FUJIY) announced improved financial results for the second quarter of fiscal 2011. During the quarter, the company reported an income of ¥22.5 billion (US$261.9 million) compared with a loss of ¥4.7 billion (US$50.2 million) during the same period of fiscal 2010. On a per ADR basis, Fujifilm reported a net income of ¥46.14 (57 US cents) compared with a net loss of ¥9.65 (10 US cents) in the prior-year period.

Revenue topped 3.1% year over year to reach ¥557.9 billion (US$6.5 billion) from ¥541.1 billion (US$5.8 billion) in the prior-year period. The growth is attributable to the rapid recovery in demand for flat display panel (FDP) material and lower operating costs in the quarter.

Revenues from the Imagine Solutions segment reached ¥82.9 billion (US$964.9 million), down 7.0% year over year due to the negative impact of the appreciation of the yen. Revenue from the Information Solutions segment rose 3.1% and reached ¥232.4 billion (US$2.7 billion), benefiting from the large rise in sale of FDP materials. Revenues from the Document Solutions grew 7.1% year over year and reached ¥242.6 billion (US$2.8 billion) due to the increase in demand for products in the emerging markets.

Fujifilm generated 46.2% of the total revenue from the domestic market, 17.0% from Americas, 11.6% from Europe and 25.2% from Asia. Out of the total revenue from Asia, 11.2% was contributed by China.

During the period, Fujifilm recorded an operating income of ¥44.0 billion (US$512.1 million) before restructuring and other charges, up from ¥19.0 billion (US$203.0 million) in the year-ago quarter. The growth was attributable to increased revenues and decreased costs. Restructuring charges were ¥5.0 billion (US$58.2 million) compared with ¥24.9 billion (US$265.8 million) in the year-ago quarter.

Fujifilm had a capital expenditure of ¥24.0 billion (US$286.8 million) in the quarter, up 20.6% from ¥19.9 billion (US$221.2 million) in the year-ago quarter. Fujifilm is planning to invest a total of ¥110 billion (US$1.2 billion) in fiscal 2011 to enhance production in order to meet increasing demand, particularly in the emerging economies.

Free cash flow reduced to ¥24.7 billion in the first half of 2010 (US$277.4 million) from ¥119.9 billion (US$1.3 billion) during the first half of 2010 to meet working capital requirements. Total debt ncreased to ¥309.7 billion (US$3.7 billion) from ¥288.1 billion (US$3.2 billion) at the end of the same period of the previous. Cash & cash equivalents dropped to ¥418.4 billion (US$5.0 billion) from ¥435.8 billion (US$4.8 billion) in the first half of fiscal 2010.

Recently, the company announced the buyback of 7.5 million common shares for ¥20 billion (US$246.3 million).

Outlook

For fiscal 2011, management expects revenues of approximately ¥2,300 billion (US$25.6 billion) and operating income before restructuring and other charges of ¥170 billion (US$1.9 billion), with restructuring charges of approximately ¥25 billion (US$277.8 million). Operating income after restructuring and other charges is expected to reach around $120 billion (US$1.3 billion) Exchange rate is assumed to be ¥90 per US Dollar.

We belive Fujifilm's strong expansion strategy into wider markets with innovative products will bring greater momentum for the stock. Hence, we reiterate our "Outperform" recommendation for the long term. The stock retains its short term “Buy” rating (Zacks #2 Rank).