On Feb. 1, Kyocera released third quarter and YTD financial results for FY2019. For the third quarter (October through December 2018) Kyocera reported revenues of $3.66 billion, a 1.7 percent increase over 3Q FY2018 (October through December 2017). However, the company reported an operating loss of $190 million for 3Q FY2019. This compares to a $350 million operating profit for the same time last year, a difference of $540 million. For the nine-month period ending Dec. 31, Kyocera has gathered a record high $10.94 billion in sales revenue and has posted operating profit of $550 million. Compared to the same time frame in FY2018, sales were up 6.1 percent but operating profit was down by $390 million, a 44 percent decrease from this same time in FY2018.
The company said sales increases in the Electronic Devices Group, Industrial & Automotive Group and the Document Solutions Group helped them achieve the record high in sales for the nine-month period. Profits are up in these three groups as well, but overall profit declined due to settlement expenses relating to long-term purchase agreements in the solar energy business and recording impairment losses in machinery, equipment, and goodwill in the organic materials business. Cash and cash equivalents on Dec. 31, 2018, stood at $3.8 billion, 19 percent higher than the same date in 2017 but slightly lower by 2 percent than the beginning of this fiscal year.
Providing guidance for total FY2019 revenue and operating profits (year ending March 31, 2019), Kyocera forecasts sales to be $14.4 billion and operating profit of $685 million. The sales revenue forecast was adjusted down by 3.0 percent from the previous forecast and is now expected to be 1.5 percent down from total FY2018. Operating profit forecast had a 23.2 percent decrease from the previous forecast and is now expected to be 16.2 percent lower than FY2018 operating profit.
Document Solutions Group
The third quarter of FY2019 saw the Document Solutions Group increase revenue to $840 million for the period, a 5.7 percent increase over 3Q FY2018. Operating profit for the period was $90 million, a 4.9 percent improvement over the same time last year.
For the nine-month period ending Dec. 31, 2018, the Document Solutions Group has seen revenue increase 2.6 percent over the same period in FY2018 to $2.5 billion. For this nine-month reporting period operating profit is $270 million, 3.4 percent higher than the first nine months of FY2018.
Kyocera said sales volumes were up for multifunctional products in Japan and overseas, which contributed to the increased sales revenue for the group. In addition, the company cited contributions from recent merger and acquisition activities as having a positive effect on revenue growth. The group’s operating profit ratio was 11.0 percent of sales. Forecasting the Document Solutions Group to end FY2019 with revenue of $3.3 billion, the company expects this group to grow 1.0 percent over last year. However, Kyocera is forecasting a 7 percent decline in Document Solutions Group operating profit to $336 million.
Our take
Kyocera has reported another record high nine-month sales revenue period. While profit was impacted in the third quarter through what appear to be one-time settlements and impairment write-offs, continued revenue growth can offset that quickly. The Document Solutions Group is having a very good year for Kyocera. The new models introduced during 2018 appear to be driving placements and revenue. Profits are increasing as well. Having revenue and profit increase together is a rarity in the industry right now.
Without unit placement data it’s hard to determine if Kyocera’s field population is increasing and whether the revenue and profit increases are due to that success at increasing MIF, selling higher value devices at higher selling prices, or increasing page volume. In any case, they seem to be enjoying growth that many of their competitors would envy. Even though Kyocera is not as optimistic for revenue growth or profit performance in their next fiscal year forecasts, with the new production print devices and the TASKalfa Pro 15000c high-speed inkjet soon to contribute to sales and page volumes, there is a good chance they’ll be moving that forecast upward in the future.
The largest challenge Kyocera faces continues to be distribution, especially in the U.S. for production and high-end products. The latest news of Staples acquiring DEX Imaging may pose a bigger challenge yet. DEX Imaging is one of the largest, if not the largest, Kyocera dealers in the U.S. Therefore, it will be interesting to see how the Staples acquisition impacts Kyocera’s U.S. operations, or if it will at all.
The company does appear to be committed to the high-volume production and inkjet area. Kyocera’s continued acquisitions of solutions companies to address the digitization of document workflows in the office seems to be a good strategy as well. Positioning themselves as trusted solutions providers is important for their future. Keeping revenue growing while working to keep profit growing in the Document Solutions Group will test Kyocera’s financial acumen. We expect that even with a lower revenue growth forecast and a downward profit projection for FY2020, Kyocera will maneuver to improve those outlooks as the year progresses.
