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Japanese electronic giant Sony reported worse than expected earnings for the three months ended March 31 on Tuesday. SNE's move to a subscription model in gaming and music is lessening the Covid impact however. Playstation sales were low ahead of PlayStation5.

sony vr headset

Sony Corp NYSE: SNE Report Earnings Before Open Tuesday

$0,09 EPS Missed Exp $0.21 EPS

Earnings

Sony Corporation (SNE) reported fiscal fourth quarter net income (GAAP basis) down 85.7% year over year to ¥12.6 billion or ¥10.10 per share ($115.6 million or 9 cents per share).Quarterly adjusted net income came in at ¥12.6 billion compared with ¥99.4 billion in the year-ago quarter. Earnings missed the Zacks Consensus Estimate by 21 cents.

Quarterly total operating revenues were down 17.8% year over year to ¥1,748.7 billion ($16,042.6 million). The lower income was primarily due to lower operating income coupled with lower other income and higher other expenses. In fiscal 2019, net income was ¥582.2 billion or ¥461.23 per share compared with ¥916.3 billion or ¥707.74 per share in fiscal 2018.

Sony Corp NYSE: SNE

Market Reaction $62.51  -$3.08 (-4.6%)

Segments

Sony's game and network services (G&NS)

  • Sales in G&NS declined 12.9% year over year to ¥433.6 billion due to fall in PlayStation4 hardware sales, game software sales and the negative impact of foreign exchange rates.
  • The segment’s operating income was ¥46.2 billion compared with ¥63.9 billion in the prior-year quarter.
  • The company’s PlayStation5 is on track for launch in this holiday season.

Sony PS5

Sony's Music

  • Sales in Music fell 0.7% year over year to ¥211.4 billion due to lower sales for Fate/Grand Order, a mobile game application.
  • This was partially offset by higher sales for Music Publishing resulting from the consolidation of EMI and higher sales for Recorded Music owing to an increase in streaming revenues.
  • The unit’s operating income was ¥30.3 billion, which improved from ¥21.8 billion in the prior-year quarter.
  • The company is facing delays in new music due to the impact of COVID-19 on recording activities.

Sony Pictures

  • Sales in Pictures increased 11.9% year over year to ¥329.1 billion led by higher worldwide theatrical revenues and licensing revenues for Television Productions.
  • The segment’s operating income was ¥23 billion compared with ¥27.1 billion in the prior-year quarter due to increase in development expenses and higher costs as a result of an increase in the number of new programs in Television Productions.
  • The company is facing delays in theatrical releases due to the closure of movie theaters and production delays.

“Speaking of pictures, theatrical release is always very important and because of the coronavirus, negative impact we currently are suffering. But once the situation settles and if we restart the theatrical operations, the people may not come to theaters to view pictures. If that happens, then we have to discuss with the businesses concerned to create a new way of releasing Sony Pictures and also we can use online.” Hiroki Totoki, chief financial officer of Sony

Sony Electronics Products & Solutions Segment

  • EP&S sales came in at ¥363.4 billion, down 24.8% on a year-over-year basis.
  • This was due to decline in smartphone and television unit sales and impact of foreign exchange rates.
  • The segment’s operating loss was ¥59.5 billion compared with an operating loss of ¥38.9 billion in the year-ago quarter.
  • The company is facing a supply shortage due to reduced production at factories.
  • There’s a delay in production due to component shortages. Also, retail sales have fallen due to the closure of stores globally.

Sony Imaging & Sensing Solutions (I&SS)

  • Sales in I&SS were up 20.2% year over year to ¥231.2 billion on significant increase in sales of image sensors for mobile products.
  • The segment’s operating income was ¥34.5 billion compared with ¥20.3 billion in the prior-year quarter.
  • The company’s image sensor manufacturing facilities are operating as usual.
  • However, it continues to monitor a slowdown in the smartphone market.

The slowdown in the smartphone market has been a drag on the Imaging & Sensing Solutions business. With the postponement of the remaining part of a major investment planned for this business segment over the next three years this will continue for some time.

Financial Services

  • Sales nosedived 56.7% year over year to ¥186.4 billion due to decline in revenues at Sony Life.
  • The segment’s operating income was ¥12.1 billion compared with ¥43.8 billion in the year-ago quarter.
  • This reflects deterioration in valuation gains and losses on securities at Sony Bank.
  • All in-person sales activity of the life planners at Sony Life has stopped and there’s a potential impact on results due to fluctuations in the financial market.
  • All Other sales were down 43.7% to ¥40.7 billion.
  • Operating loss was ¥4.2 billion compared with an operating loss of ¥22.6 billion in the prior-year quarter.

Total Expenses

Quarterly total expenses were ¥1,716.5 billion, down 16.1% year over year, primarily due to lower cost of sales and financial services expenses. Overall operating income was ¥35.4 billion, down 57.2%.

Cash Flow & Liquidity

In fiscal 2019, Sony generated ¥1,349.7 billion of net cash from operating activities compared with ¥1,258.7 billion in fiscal 2018.

As of Mar 31, 2020, the electronics and media company had ¥1,512.4 billion ($13,988.2 million) in cash and equivalents with ¥635 billion ($5,873.1 million) of long-term debt compared with the respective tallies of ¥1,470.1 billion and ¥568.4 billion a year ago.

  • Conversion rate used: ¥1 = $0.009174 (period average from Jan 1, 2020 to Mar 31, 2020)

 

Outlook

FY20 Outlook Due to uncertainties related to the COVID-19 pandemic, the Tokyo, Japan-based company is unable to determine its future earnings. Sony plans to make an announcement once it makes a reasonable estimate.

Based on the current situation, it expects aggregate operating income for fiscal 2020 to be at least 30% lower than the level achieved in the prior fiscal.

Despite the shutdown-linked disruptions and supply chain issues, Sony ruled out any delay in the PS5 launch that is expected to be held before year-end.

Red Dead Redemption 2

The company has a strong international presence with the majority of revenues coming from emerging markets. With that SNE has been suffering from negative impact of foreign currency fluctuations. Fluctuations in foreign exchange rates, particularly yen, the U.S. dollar and euro, impact Sony’s financials as it has significant exposure in these currencies, both in terms of sales and production costs.

As many segments of the company have concentrated operations in specific regions, the currency impact differs from segment to segment.

Source: Sony, Zacks

 From The TradersCommunity Research Desk

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