Sony Corp Ord (SNE)

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Sony (SNE)

Q2 2012 Earnings Call

November 01, 2012 4:30 am ET

Executives

Masaru Kato - Chief Financial Officer, Executive Vice President, Corporate Executive Officer, Director and Member of Compensation Committee

Yoshinori Hashitani

Analysts

Takashi Watanabe - Goldman Sachs Group Inc., Research Division

Masahiro Ono - Morgan Stanley, Research Division

Yuji Fujimori - Barclays Capital, Research Division

Shiro Mikoshiba - Nomura Securities Co. Ltd., Research Division

Presentation

Operator

[Japanese] The scheduled time has come, so we would like to start the fiscal year '12 second quarter earnings announcement meeting. Let me explain the speakers. To your right, Masaru Kato, Corporate Executive Officer, EVP and CFO. Next to him is Head of Investor Relations, Yoshinori Hashitani.

Now, Mr. Kato, please.

Masaru Kato

Thank you very much. I will begin by explaining the consolidated results for the second quarter ended September 30, 2012. The operating environment from Sony in the second quarter continue to be severe due to the slowing of the global economy. Despite this, consolidated sales for the quarter increased year-on-year due to the consolidation of Sony Mobile, and operating results increased significantly year-on-year. And we recorded greater profits than we had originally expected.

We have revised downward our August consolidation sales forecast for the current fiscal year by JPY 200 billion to JPY 6.6 trillion, but because the annual unit sales forecast for key products are expected to be below our previous forecast. Although we foresee a severe operating environment in the second half, resulting from continued uncertainty of economic trends, we have left operating income for the fiscal year unchanged. And we expect to secure the JPY 130 billion we forecasted in August.

Now, I will go through our income statement for the second quarter and the full year. Consolidated sales increased slightly. This was mainly due to consolidation of Sony Mobile and equity affiliate in the same quarter the previous year that became a wholly owned subsidiary on February 16, but it was partially offset by the decrease in unit sales of LCD TVs. On a constant currency basis, sales increased 3%.

Operating income of JPY 30.3 billion was recorded compared to an operating loss of JPY 1.6 billion. This was mainly due to an improvement in operating results of the Devices and Home Entertainment & Sound segments. The improvement in the operating results of the Devices segment was mainly due to the recording of expenses associated with the sales of the small and medium-sized display business in the second quarter of the previous year, significant increase in sales of image sensors in this quarter and recording the gain on the sale of chemical products business.

The improvement of operating results of Home Entertainment & Sound segment was mainly due to an improvement in the TV business, where we are seeing the benefit of reduced LCD panel expenses and operating expenses. Equity net loss of affiliated companies recorded within operating income was JPY 3.1 billion compared to net equity income of JPY 1.1 billion last year. The net excess of other income and expenses was a loss of JPY 10.6 billion in the current quarter compared to income of JPY 1.7 billion last year. Income before income taxes increased JPY 19.6 billion year-on-year-on-year to JPY 19.7 billion. JPY 22 billion of income tax expense was recorded. As of March 31, 2012, Sony has established a valuation allowance against the certain deferred tax assets for Sony Corporation and international filing group in Japan, the consolidated tax filing group in the U.S. and certain other subsidiaries.

During the current fiscal year, we will maintain this judgment. So Sony continued not to recognize the associated tax benefit. As a result, Sony's effective tax rate for the current quarter exceeded the Japanese statutory tax rate. Net loss attributable to Sony Corporation's stockholders decreased JPY 11.5 billion to minus JPY 15.5 billion.

Now, I will compare this quarter's operating results to our August forecast. You can see the chart in front of you. On a consolidated basis, results were JPY 20 billion higher than our August forecast. On a segment basis, the Game segment exceeded the August forecast by about JPY 5 billion due to the improvement of SG&A. The Home Entertainment & Sound segment exceeded August forecast by about JPY 10 billion due to cost improvement in the TV business that exceeded our expectation.

Although sales of image sensors were below expectations, Devices segment was JPY 10 billion higher than the August forecast due to the recording of a gain on the sale of chemicals product business and the benefit of insurance proceeds from the floods [ph]. The Pictures segment was JPY 5 billion below the August forecast due to the underperformance of certain films and the recognition earlier than expected of marketing expenses for motion pictures to be released in October.

The Financial Services segment was JPY 5 billion higher than August due to the lower insurance payment than anticipated and higher-than-expected investment performance in general accounts. Imaging Products and Solution segment and Mobile Products & Communications segment and Music segment were all to the expectation.

Now I'd like to explain our forecast for full year ending March 2013. Assuming foreign exchange rates for the second half of the fiscal year, about JPY 80 to the dollar and JPY 100 to the euro, so this represents no change from August forecast.

Consolidated sales for the fiscal year are expected to be JPY 200 billion below the August forecast or JPY 6.6 trillion, mainly due to the downward revisions in annual unit sales forecast of key products. There's no change to the forecast we announced on August 4. Second, for operating income, income before income taxes and income attributable to Sony per shareholders.

Read the rest of this transcript for free on seekingalpha.com