Sony (SNE) Q2 Earnings Top Estimates, Revenues Increase Y/Y

Sony CorporationSNE reported healthy second-quarter fiscal 2018 results, wherein the bottom line surpassed the Zacks Consensus Estimate.

Net Income

In the quarter, Sony's net income increased 32.2% year over year to ¥173 billion or ¥133.43 per share ($1.6 billion or $1.20 per share) supported by healthy revenue growth. The bottom line comfortably surpassed the Zacks Consensus Estimate of 91 cents.

Sony Corporation Price, Consensus and EPS Surprise

Sony Corporation Price, Consensus and EPS Surprise | Sony Corporation Quote


Total operating revenues were up 5.8% year over year to ¥2,182.8 billion ($19.6 billion). Impressive performance of the company's Game & Network Services (G&NS), Imaging Products & Solutions (IP&S), Semiconductors and Financial Services segments spurred the top-line growth.

Segmental Performance

Sales at G&NS increased 27% year over year to ¥550.1 billion primarily due to increase in game software sales.

Sales at Music declined 1.3% to ¥203.9 billion owing to lower recorded music sales.

Sales from Pictures decreased 1.3% to ¥240.9 billion largely due to decrease in sales for Motion Pictures.

Home Entertainment & Sound sales came in at ¥274.9 billion, down 8.6% on a year-over-year basis. This was due to decrease in television unit sales resulting from the strategic decision to not pursue scale in order to focus on premium models for higher profitability.

Sales at IP&S were up 4.6% to ¥163.9 billion. Improvement in the product mix of still and video cameras reflecting a shift to high value-added models drove the performance.

Mobile Communications (MC) sales declined 31.5% to ¥117.8 billion due to decrease in smartphone unit sales primarily in Europe, Latin America and the Middle East.

Semiconductors sales in the fiscal second quarter increased 11.4% year over year to ¥254.4 billion owing to significant increase in sales of image sensors for mobile products.

Financial Services sales were up 26.6% to ¥353.5 billion. Significant increase in revenues at Sony Life and higher insurance premium revenues boosted the segment's performance.

Sales at All Other were down 21% to ¥89.1 billion.

Other Quarter Details

Total costs and expenses were ¥1,945.6 billion ($17.4 billion), up 4.6% year over year, primarily due to higher financial services expenses.

Operating income was ¥239.5 billion ($2.1 billion), up 17.3% from the year-ago quarter. Improvement in the operating result of the G&NS, IP&S, Semiconductors and Financial Services segments proved conducive to operating performance.

Cash Flow and Liquidity

For the first six months of fiscal 2018, Sony generated ¥410.8 billion of cash from operations compared with ¥265.4 billion in the year-ago period.

As of Sep 30, 2018, Sony's cash and cash equivalents were ¥1,540.8 billion ($13.5 billion) while its long-term debt totaled ¥510.2 billion ($4.5 billion).

Fiscal 2018 Outlook

Sony has revised its consolidated guidance for the fiscal year ending Mar 31, 2019 from the previous guidance provided in concurrence with first-quarter results. Currently, the company expects sales and operating revenues to be ¥8,700 billion, up from ¥8,600 billion predicted in July. This is primarily due to higher-than-expected sales in the G&NS segment and the Music segment, partly offset by lower-than-expected sales in the MC segment.

Operating income is projected to be ¥870 billion, up from ¥670 billion primarily due to higher operating income in the Music and G&NS segments. Income before income taxes is expected to be ¥975 billion, up from ¥760 billion primarily due to likely increase in operating income as well as higher-than-expected net gain on equity securities in the current quarter. Net income is anticipated to be ¥705 billion, up from ¥500 billion due to higher pre-tax income as well as lower-than-expected effective tax rates.

Going Forward

Backed by solid performance of G&NS segment, owing to higher sales of game software, PlayStationPlus and PlayStation4 hardware, Sony expects the growth momentum to continue in the upcoming quarters. We expect the Music segment to benefit from the consolidation of EMI and strong performance of the mobile gaming application Fate/Grand Order. However, Sony is likely to see slower growth due to decrease in smartphone unit sales primarily in Europe and Japan.

Zacks Rank and Stocks to Consider

Sony currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include The E.W. Scripps Company SSP , Gaia, Inc. GAIA and Grupo Televisa, S.A.B. TV , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

E.W. Scripps, Gaia and Grupo Televisa have a long-term earnings growth expectation of 10.5%, 15% and 31.7%, respectively.

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¥1 = $0.008970 (Period average from Jul 1, 2018 to Sep 30, 2018)

¥1 = $0.008794 (As of Sep 30, 2018)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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