Hitachi Ltd. Misses Q1 Earnings Estimates, Raises Guidance

Zacks

Hitachi Ltd. (HTHIY) reported first-quarter earnings of 6 cents a share which was well below the Zacks Consensus Estimate of 32 cents a share. However, quarterly earnings were above the prior-year earnings of 2 cents a share.

The year-over-year profits were driven by an overall improvement in the global economy in the first quarter of 2014 driven by improving employment and income levels in the U.S. This apart, the Japanese economy also contributed to global economic recovery as the government implemented national growth strategies along with improvement in employment conditions and rebound in capital expenditures.

Revenues

Revenues in the first quarter amounted to $20.9 million, highlighting an increase of 3% year over year. The upside primarily resulted from higher year-over-year revenues across seven of the eight segments.

Segment Wise

The Information & Telecommunication Systems segment reported an 8% year-over-year increase in revenues to $4.1 million primarily attributable to strong performances of system solutions.

Revenues in the Power Systems declined 43% year over year to $871 million owing to the integration of the thermal power generation systems business into Mitsubishi Hitachi Power Systems, Ltd. in Feb 2014. However, this decrease was partly offset by higher revenues from nuclear power generation systems, power transmission & distribution systems and other businesses.  

Social Infrastructure and Industrial Systems reported revenues of $2.8 million reflecting an increase of 7% year over year. The increase was driven by higher sales in the infrastructure systems business and railway system business in the U.K., along with a solid performance of the elevator and escalator business in China.

The Electronic Systems and Equipment segment reported a 12% year-over-year increase in revenues to $2.5 million. The upside was primarily  driven by higher sales of semiconductor manufacturing systems and medical analysis systems at Hitachi High-Technologies Corporation and increased sales of semiconductor manufacturing systems at Hitachi Kokusai Electric Inc.

Revenues at the Construction Machinery segment exhibited a 2% year-ove- year increase to $1.8 million aided by strong sales of hydraulic excavators and other items, primarily in Europe. However, sales were somewhat weak in Asia, including China and Oceania.

The High Functional Materials & Components segment reported a marginal improvement in revenues of 1% to $3.4 million. This marginal increase was attributable to solid performances by automobile products primarily in North America and China, and certain electronics-related materials.

Automotive Systems reported revenues of $2.1 million, reflecting a rise of 6% year over year driven by robust demand in international automobile markets such as North America and China.

Meanwhile, Smart Life and Ecofriendly Systems reported revenue growth of 7% year over year to $2.0 million driven by higher overseas sales  in the air-conditioning business.

The Others segment reported a 5% year-over-year improvement in revenues to $2.8 million while revenues in the financial services segment reported a 19% increase to $965 million driven by one-time revenues associated with a large property sale in Japan following lease cancellation. In addition, results reflect a strong performance by Hitachi Capital Corporation’s overseas business, particularly in Europe.

Revenues by Geography

Revenues for the company in the domestic market grew 2% year over year to $11 million while internationally revenues grew 3% year over year. Revenues from Asia were flat year over year whereas North American revenues surged 3%. Revenues from Europe  exhibited a robust growth of 26% year over year.

Other Financial Details

Exiting the quarter, the company reported cash and cash equivalents of $5.7 million as on Jun 30, 2.14 while long term debt was $16.0 million as on the same date. Net cash from operating activities was $1.1 million. Capital expenditures for the quarter amounted to $779 million while research & development expenses came in at $791 million.

Outlook

Encouraged by its strong performance in the first quarter the company raised its guidance for the first half of 2014. Hitachi now expects revenues of $44.1 million while operating income is now expected $1.8 million. Net income is now projected at $594 million.

Hitachi currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the sector include Skullcandy, Inc. (SKUL), Dolby Laboratories, Inc. (DLB) and Panasonic Corp. (PCRFY). While Skullcandy sports a Zacks Rank #1 (Strong Buy), both Dolby Laboratories and Panasonic Corp. carry a Zacks Rank #2 (Buy).

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