Fujifilm Results Improve - Analyst Blog

Fujifilm Holdings Corporation (FUJIY) reported improved financial results for the third quarter of fiscal 2011. During the quarter, the company reported an income of ¥37.2 billion (US$424.2 million) compared with a loss of ¥3.2 billion (US$34.2 million) during the same period of fiscal 2010.

On a per ADR basis, Fujifilm reported a net income of ¥34.16 (US$0.39) compared with a net loss of ¥3.2 (US$0.03) in the prior-year period.

Revenue topped marginally by 1.3% year over year to reach ¥546.4 billion (US$6.2 billion) from ¥553.6 billion (US$5.9 billion) in the prior-year period. The growth is attributable to the rapid recovery in demand in the emerging markets and lower operating costs in the quarter.

Revenues from the Imagine Solutions segment reached ¥91.2 billion (US$1.0 million), down 6.2% year over year due to the negative impact of the appreciation of the yen. Revenue from the Information Solutions segment decreased 3.7% and reached ¥213.6 billion (US$2.4 billion).

Revenues from the Document Solutions grew 3.0% year over year and reached ¥241.6 billion (US$2.8 billion) due to the increase in demand for products in the emerging markets and exports to Xerox Corporation (XRX). Fujifilm generated 45.8% of total revenue from the domestic market, and rest from Overseas.

During the period, Fujifilm recorded an operating income of ¥39.8 billion (US$512.1 million) before restructuring and other charges, up from ¥37.0 billion (US$394.9 million) in the year-ago quarter. The growth was attributable to increased revenues and decreased costs. Restructuring charges were ¥3.2 billion (US$36.5 million).

Fujifilm incurred capital expenditure of ¥23.1 billion (US$283.1 million) in the quarter, more than double from ¥10.4 billion (US$112.8 million) in the year-ago quarter. Fujifilm is planning to invest a total of ¥100 billion (US$1.2 billion) in fiscal 2011 to enhance production in order to meet the increasing demand, particularly in the emerging economies.

Free cash flow reduced to ¥10.9 billion (US$133.6 million) in the nine months ended 31 December, 2010, from ¥112.0 billion (US$1.2 billion) at nine months ended 31 December, 2009, to meet working capital requirements and share buy back.

Total debt increased to ¥319.5 billion (US$3.9 billion from ¥309.7 billion (US$3.7 billion) at the end of second quarter of fiscal 2011. Cash & cash equivalents dropped to ¥381.1 billion (US$4.7 billion) from ¥418.4 billion (US$5.0 billion) at the end of the previous quarter.

On October 29, 2010, the company announced the buyback of 7.5 million common shares for ¥20 billion (US$246.3 million).

Outlook

Management has revised its fiscal 2011 guidance. Now it expects revenues of approximately ¥2,240 (US$26.4 billion) from ¥2,300 billion previously declared.

Operating income before restructuring and other charges is now expected to be ¥170 billion (US$2 billion), with restructuring charges of approximately ¥30 billion (US$352.9 million) from the previous forecast of ¥145 billion with restructuring charges of approximately ¥25 billion.

Operating income after restructuring and other charges is expected to reach around $140 billion (US$1.6 billion) from $120 billion stated earlier. Exchange rate is assumed to be ¥85 per US Dollar.

We believe Fujifilm's strong expansion strategy into markets with innovative products will bring greater momentum to the stock. However, decrease in the demand for FDP materials followed by the decline in the production of LCD panel together with weaker profitability at the digital camera business from intense price competition raises our concern on the ADR.

Hence, we reiterate our Neutral recommendation for the long term. The stock retains its short-term Hold rating (Zacks #3 Rank).

 
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