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Sony (SNE) Q1 Earnings Beat Estimates, Revenues Fall Y/Y

Zacks Equity Research

Sony Corporation SNE reported lackluster first-quarter fiscal 2019 financial results, wherein both the bottom line and the top line decreased year over year.

Net Income

For the fiscal first quarter, Sony’s net income was down 32.8% year over year to ¥152.1 billion or ¥119.22 per share ($1,383.7 million or $1.08 per share), primarily due to top-line contraction and lower net gain on equity securities. The bottom line, however, beat the Zacks Consensus Estimate by 30 cents.

Sony Corporation Price, Consensus and EPS Surprise

Sony Corporation Price, Consensus and EPS Surprise

Sony Corporation price-consensus-eps-surprise-chart | Sony Corporation Quote

Revenues

Total quarterly sales were down 1.4% year over year to ¥1,925.7 billion ($17,518.1 million) mainly due to significant decrease in Electronics Products & Solutions (EP&S) segment sales. The top line lagged the consensus estimate of $18,205 million.

Segment Results

Sales at Game & Network Services (G&NS) declined 3.1% year over year to ¥457.5 billion primarily due to decrease in contribution from first-party software titles and impact of foreign exchange rates. The segment’s operating income was ¥73.8 billion compared with ¥8.35 billion in the prior-year quarter.

Sales at Music improved 11.5% to ¥202.3 billion due to higher sales for Music Publishing resulting from the consolidation of EMI, and higher sales for Recorded Music. The segment’s operating income was ¥38.3 billion, which increased from ¥32.1 billion in the prior-year quarter.

Sales from Pictures rose 6.3% to ¥186.1 billion due to higher theatrical revenues, benefitting from the theatrical release of Men in Black: International and Spider-Man: Far from Home, and higher television licensing revenues for catalog titles. The segment’s operating income was ¥0.4 billion against operating loss of ¥7.6 billion in the prior-year quarter.

EP&S sales came in at ¥483.9 billion, down 14.8% on a year-over-year basis. This was due to decline in unit sales of televisions, smartphones and digital cameras. The segment’s operating income was ¥25.1 billion compared with ¥32.7 billion in the prior-year quarter.

Sales at Imaging & Sensing Solutions (I&SS) were up 14.1% to ¥230.7 billion due to significant increase in sales of image sensors for mobile products. The segment’s operating income was ¥49.5 billion compared with ¥29.1 billion in the prior-year quarter.

Financial Services sales were up 0.5% to ¥336.9 billion due to increase in net gains from investment securities at Sony Bank and growth in net premiums written at Sony Assurance. The segment’s operating income was ¥46.1 billion compared with ¥40.6 billion a year ago.

Sales at All Other were down 16% to ¥69.6 billion. The segment’s operating loss was ¥2.6 billion against operating profit of ¥0.3 billion in the prior-year quarter.

Other Details

Total expenses were ¥1,696.1 billion, down 3.3% year over year, primarily due to lower cost of sales. Overall operating income was ¥230.9 billion, up 18.4%, driven by significant growth in I&SS segment operating income.

Cash Flow & Liquidity

During fiscal first quarter, Sony utilized ¥823 million of net cash from operating activities against cash generation of ¥96,771 million in the year-ago quarter. As of Jun 30, 2019, the electronics and media company had ¥1,210.5 billion ($11,209.2 million) in cash and equivalents with ¥528.1 billion ($4,890.2 million) of long-term debt.

FY19 Outlook

The Japanese firm has provided its consolidated guidance for the fiscal ending Mar 31, 2020. The company currently expects operating revenues to be ¥8,600 billion (down from the previous guidance of ¥8,800 billion, as a result of weak demand for the PlayStation 4 gaming console, televisions and smartphones). Operating income is projected to be ¥810 billion. Income before income taxes is expected to be ¥770 billion. Sony anticipates net income to be ¥500 billion, while operating cash flow (without Financial Services) is projected to be ¥760 billion.

Zacks Rank & Stocks to Consider

Sony currently has a Zacks Rank #4 (Sell). A few better-ranked stocks in the broader industry are GoPro, Inc. GPRO, Shaw Communications Inc. SJR and Comcast Corp. CMCSA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GoPro surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 28.1%.

Shaw Communications surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 14.9%.

Comcast surpassed earnings estimates in each of the trailing four quarters, the average positive surprise being 7.2%.

Conversion rate used:

¥1 = $0.009097 (period average from Apr 1, 2019 to Jun 30, 2019)

¥1 = $0.009260 (as of Jun 30, 2019)


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