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Sony (SNE) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

Sony Corporation SNE is scheduled to report fourth-quarter fiscal 2018 financial results on Apr 26, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 54.2%. Let’s find out how things are shaping up prior to the announcement.

During the fiscal fourth quarter, Sony introduced a new music experience — 360 Reality Audio — to make listeners feel as if they are immersed in sound from all directions. This was delivered by the company’s object-based spatial audio technology and was announced at CES 2019 in Las Vegas.

It announced that it is working with major music labels, music distribution services to provide the technology for building a musical ecosystem around 360 Reality Audio. Sony is also working to promote this music experience to music creators, artists and music fans, with an aim of building an entirely new world of music entertainment.

During the quarter, Sony announced that it is going to shift its consumer electronics business’ European headquarters from the United Kingdom to the Netherlands, to ensure continuity of operations on account of Brexit-related disruptions. The Japanese electronics giant had set up a new company in the Netherlands in December last year, which would be combined with its U.K.-based Sony Europe. The move allows Sony to remain in the European Union Customs Union while safeguarding itself from the potential risks arising from post-Brexit turmoil, like change in labels for its products.

For fiscal 2018, management expects consolidated sales to be ¥8,500 billion, down from ¥8,700 billion forecasted in October 2018. This is primarily due to lower-than-expected sales in Financial Services, Semiconductors, Mobile Communications (MC), and Imaging Products & Solutions segment (IP&S).

Sales at Financial Services are expected to be lower than previously estimated due to deterioration in investment performance in the separate accounts at Sony Life Insurance Co. Ltd. Sales at Semiconductors are expected to be lower due to lower-than-expected unit sales of image sensors for mobile products, and factory automation and surveillance cameras.

Sales at MC are expected to be lower due to a downward revision of smartphone unit sales mainly in Japan, Europe and East Asia. Sales at IP&S are expected to be lower due to an expected decline in compact digital camera unit sales. However, sales at Game & Network Services, Music, Pictures, and Home Entertainment & Sound segment are expected to remain unchanged from the October forecast.

For fiscal 2018, Sony’s operating income is projected to be ¥870 billion, unchanged from the October forecast. Income before income taxes is expected to be ¥950 billion, down from ¥975 billion, primarily due to higher-than-expected net loss on equity securities for the fiscal.

Despite expected decline in income before income taxes, Sony anticipates net income to be ¥835 billion, up from ¥705 billion, forecasted earlier due to the reversal of valuation allowances against a significant portion of deferred tax assets in the U.S. consolidated tax group. This will likely result in a tax benefit for the company.

For the fiscal fourth quarter, the Zacks Consensus Estimate for adjusted earnings per share are pegged at 19 cents. The company incurred adjusted loss of 12 cents per share a year ago.

What Our Model Says

Our proven model does not show that Sony is likely to beat earnings this quarter as it does not possess any of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Sony’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 19 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Sony Corporation Price and EPS Surprise

Sony Corporation Price and EPS Surprise | Sony Corporation Quote

Zacks Rank: Sony currently has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Molina Healthcare, Inc. MOH with an Earnings ESP of +3.49% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

PotlatchDeltic Corporation PCH with an Earnings ESP of +9.09% and a Zacks Rank #2.  

ConocoPhillips COP with an Earnings ESP of +1.55% and a Zacks Rank #2.  

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