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Canon raises profit outlook as weak yen swells earnings

Canon raises profit outlook as weak yen swells earnings

By Reuters | Updated: 24 April 2013 18:04 IST

Canon Inc raised its full-year operating profit forecast by $300 million as a weakening yen triggered by Japan's latest deflation-fighting policies inflates its overseas earnings, despite smartphones sapping compact camera sales.

For the business year to December 31 2013, the company, which relies on foreign markets for four-fifths of sales, lifted its operating profit forecast to 450 billion yenfrom 410 billion yen. That compares with the average expectation of a 473 billion yen profit among 21 analysts surveyed by Thomson Reuters.

As one of the first blue-chip Japanese corporations to report quarterly results, results from Canon, which is considered a leader in profitability in corporate Japan with its aggressive cost-cutting and high degree of factory automation, is often seen as a barometer for tech sector earnings.

"We welcome Abenomics," Chief Financial Officer Toshizo Tanaka said at a news briefing, acknowledging the impact of Prime Minister Shinzo Abe's economic policies.

"The Japanese economy moves on this kind of mood so we value this and hope to find success," he added.

His company raised its forecast for the yen rate against the dollar to 95 yen for the business year compared with 85 yen to the dollar three months earlier.

Abe's government says the yen's rapid weakening is a by-product of its economic policies and not the goal. Still, the depreciation is what business leaders worried about their ability to compete, particularly against South Korean firms, have been urging.

Fabricating goods worth around 38 trillion yen a year, Japanese makers of TVs, mobile phones, printers and personal computers account for a sizeable chunk of Japan's $5 trillion economy. The tech sector directly employs around 2 million workers in Japan, making it an influential lobby.

Canon's operating profit in the first quarter dipped 34 percent to $552 million, which the company blamed on a weakened global economy, and picture-taking consumers eschewing compact cameras in favour of smartphones.

Welcome weakness
Corporate heads who have praised Abenomics include Sony Corp CEO Kazuo Hirai. His company and other Japanese TV makers, Panasonic Corp and Sharp Corp struggled to fend off competition from Samsung Electronics as a strong yen bit into profits.

Sony with its bigger exposure to overseas markets stands to gain the most from a weaker yen, particularly versus the euro. A 1 yen change against the European single currency adds about 6 billion yen to operating profit at the maker of Bravia sets.

At Panasonic a 1 yen weakening against the euro moves the currency by 2 billion yen, and by 2.5 billion yen for changes against the dollar. At Sharp, which more heavily relies on its home market, a 1 yen move against the euro is worth around 500 million yen in operating profit and 700 million yen against the dollar.

More than a third of companies remain worried about domestic demand stagnating, a Reuters survey of 240 companies released on Friday shows. A quarter said they were likely to increase output in Japan because of the weaker yen.

Since mid-November when an Abenomics stock rally began, Canon's shares, have gained 58 percent in line with a 60 percent gain in the Nikkei 225 benchmark index. Its stock rose 1.3 percent in Tokyo to 3,840 yen on Wednesday. Quarterly results were released after the close of trading.

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