China's Boycott Adds to Canon's Woes, Net Down 36%

[Anonymous]

China’s Boycott Adds to Canon’s Woes, Net Down 36%

TOKYO—Canon Inc. 7751.TO +2.24% sharply cut its earnings outlook for 2012 and reported dismal third-quarter results Thursday, underscoring the company’s pessimistic view of the global economic slowdown, the yen’s strength and the consumer boycott of Japanese products in China over a territorial dispute.

The languid performance by the generally solid exporter bellwether may serve as early confirmation of weak July-September earnings results expected from struggling tech heavyweights such as Sony Corp. 6758.TO -1.14% and Sharp Corp. 6753.TO -4.19% next week.

The problems that Canon said it is facing, particularly the two-punch combination of a strong yen and the European sovereign-debt crisis, are not isolated to the laser printer and compact digital camera maker and are likely to spill over to the rest of Japan Inc.

Making matters worse, Canon and other major exporters have been forced to contend with the prospect of slowing sales in China as Japanese products have fallen out of favor due to tensions over a territorial dispute between the two countries.

Canon revised down its full-year net profit outlook to ¥234 billion (US$2.92 billion) from ¥250 billion. That would represent a 5.9% fall from a ¥248.63 billion profit it generated in 2011 and would mark the first fall in three business years.

Sales are now pegged at ¥3.532 trillion, down from ¥3.690 trillion previously foreseen, while it cut its operating profit outlook to ¥356 billion from ¥390 billion.

Following anti-Japan rallies in September over the dispute, Canon suspended operations at four of its five group factories in China for three to five days, due to safety concerns.

"In addition to the impact of the global economic slowdown, we’ve factored in the risk that our sales activities are facing, especially in China," Canon Chief Financial Officer Toshizo Tanaka said at a news conference.

Although there has been no impact on its production and facilities there, Mr. Tanaka said consumers in China have been boycotting Japanese cameras and consumer goods, while Chinese public offices have suspended buying office equipment made by Japanese firms.

As a result, Canon lowered its full-year sales outlook for its compact digital cameras by about 10% to 19 million units, and about a quarter of the magnitude of the revision, or 500,000 units, is expected to come from the anticipated decline in China sales.

Although the company hopes consumer appetites will return to Japanese goods eventually, it is unclear when that will happen, Mr. Tanaka said. "Our earnings outlook is based on the worst-case scenario that the current situation will persist until the end of the year," he said.

The full-year outlook is based on the assumption the dollar will average ¥78 and the euro ¥100 for the remaining quarter. Three months ago, the company assumed the dollar would average ¥80 and the euro ¥100 during and after the third quarter.

For the fiscal third quarter ended September, Canon generated a net profit of ¥50.14 billion, down 36% from a year-earlier profit of ¥77.86 billion.

Sales during the latest reporting quarter declined 13% to ¥799.95 billion from ¥916.91 billion a year earlier. Operating profit dropped 42% to ¥70.88 billion.

Canon’s earnings are based on U.S. accounting standards.

[Author]

October 25, 2012 at 8:25 AM