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Panasonic expects third year of profit growth as revamp bears fruit

People walking past are reflected in a sign at Panasonic Center Tokyo in Tokyo March 12, 2014. REUTERS/Toru Hanai
People walking past are reflected in a sign at Panasonic Center Tokyo in Tokyo March 12, 2014. REUTERS/Toru Hanai

By Sophie Knight and Reiji Murai

TOKYO (Reuters) - Panasonic Corp forecast a third straight year of operating profit growth as it wraps up a restructuring campaign to shift its focus from volatile consumer markets to more reliably profitable industrial products such as car batteries.

The company expects a sharp slowdown in profit growth for the year to next March, however, with its home fixtures business buffeted by a hike in Japan's sales tax on April 1, while gains from a falling yen fade out as the currency stabilizes.

In contrast to rival Sony Corp, which in February was forced to slash its profit forecast for the fiscal year just ended while its TV unit limps into its tenth year in the red, Panasonic topped its full-year guidance for the 2013/14 fiscal year after giving several loss-making businesses the chop.

"We have made a big shift away from focusing on the top line," said Chief Executive Kazuhiro Tsuga, who last year made the decision to close down a plasma TV factory complex and sold off several domestic chip plants.

The Japanese electronics conglomerate is looking to spend 90 billion yen ($882 million) this fiscal year to clear out any businesses still bleeding red ink. The biggest of those is the division making LCD panels for TVs, which lost 46.5 billion yen in 2013/14, although Tsuga said only that the company was considering various options for its LCD plant.

Panasonic spent 207.4 billion yen in 2013/14 on the restructuring drive, which also pulled it out of consumer smartphones and lessened its reliance on other consumer markets.

Industrial products, especially automotive parts, are expected to drive growth this fiscal year, when Panasonic forecasts a 1.6 percent rise in operating profit to 310 billion yen ($3.04 billion), just short of the 325.6 billion yen mean estimate of 20 analysts polled by Thomson Reuters StarMine.

GROWTH EBBS

While analysts say Panasonic is typically conservative in its guidance, that growth rate pales in comparison to the 90 percent of last year, when demand for electronic goods and housing-related fixtures in its eco-solutions unit surged before the sales tax hike.

Panasonic booked operating profit of 305.1 billion yen for the year ended on March 31, its best result in three years and beating guidance of 270 billion yen, as well as the 292.02 billion yen mean estimate of 20 analysts according to Thomson Reuters StarMine.

Tsuga said the company had taken necessary steps to focus on profit over sales: without a 625.1 billion yen boost from a weaker yen in the just-ended year, revenue would have fallen 3 percent rather than rising 5.9 percent to 7.7 trillion yen.

The firm's improved financial health in 2013/14 - it returned to net profit after racking up 1.5 trillion yen ($14.7 billion) in losses over the previous two years - was underlined by its plan to cut interest-bearing debt to zero this fiscal year from 47.6 billion yen at the end of March, to improve its credit rating.

The Japanese company tripled profit from its auto and industrial component business to 85.7 billion yen and forecast the segment to grow a further 24.8 percent this year, which would account for just over a third of total operating profit.

In contrast, its former mainstay and best-known consumer products such as TVs, DVD players and audio systems are expected to account for just 13 percent of operating profit.

In a five-year blueprint announced last month, Panasonic targeted a near doubling of sales to the auto sector, a 50 percent rise in the housing sector and a one-third increase in a business-to-business arm that includes aviation, energy and logistics.

Shares of Panasonic closed down 0.7 percent before the results versus a 1.0 percent fall in the benchmark Nikkei average. The shares have fallen 8.5 percent since the start of the year, compared with the Nikkei's 12.3 percent drop.

($1 = 102.0350 Japanese Yen)

(Editing by Edmund Klamann, Christopher Cushing and Mark Potter)

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