Looming power shortages and the prolonged sovereign debt crisis in Europe are overshadowing corporate Japan’s hopes for a V-shaped earnings recovery for the current fiscal year.
According to SMBC Nikko Securities Inc., combined net profits at 667 companies that released their fiscal 2011 financial results by May 10 declined 28.5 percent from a year earlier while sales rose 1.6 percent.
The companies are projecting a 51.4-percent surge in net profits for fiscal 2012 on a 5.8-percent rise in sales.
The 667 companies, which exclude financial institutions, account for 56 percent of all companies listed on the First Section of the Tokyo Stock Exchange.
The overall trend in earnings is expected to remain unchanged after all the companies release their financial results.
Electronics manufacturers were hit hard by the triple whammy of the Great East Japan Earthquake of March 11, 2011, excessive flooding in Thailand in autumn and the yen’s appreciation.
The sector’s combined net profits plunged 86.8 percent from fiscal 2010, according to SMBC Nikko Securities.
Panasonic Corp., Sony Corp. and Sharp Corp. were particularly heavy losers, incurring 1.6 trillion yen in combined net losses from lackluster performances in flat-screen TVs.
“We faced an overlapping of factors that aggravated the business environment, and our earnings worsened day by day,” Panasonic President Fumio Ohtsubo said May 11 after reporting 772 billion yen in net losses, the second-largest on record for a Japanese manufacturer.
Sony’s net loss was 457 billion yen, while Sharp’s net loss was 376 billion yen.
Automakers also suffered from last year’s earthquake and tsunami, flooding in Thailand and the strong yen. Still, they fared better than electronics makers by increasing sales in emerging economies.
The sector’s combined net profits fell 33.5 percent.
Electric and gas utilities reported 691 billion yen in combined net losses because electric power companies were forced to shut down nuclear reactors after the accident at the Fukushima No. 1 nuclear power plant.
Many companies are forecasting a V-shaped recovery in fiscal 2012 partly on the back of post-quake reconstruction demand in Japan.
Electronics manufacturers are counting on growing sales of industrial production and power generation facilities abroad.
“We will secure more contracts for power-related facilities, railways and water treatment units while downsizing TV operations,” said Hiroaki Nakanishi, president of Hitachi Ltd.
Toshiba Corp. has received orders for large power stations in the United States, India and elsewhere.
Panasonic plans to focus on residential storage batteries and electric facilities to be installed in buildings.
Automakers plan to increase overseas production and purchase more parts from foreign suppliers.
Mitsubishi Motors Corp. began production in Thailand in April of a small car designed for global markets.
“This year, we will be sowing seeds for increasing profits,” MMC President Osamu Masuko said.
Still, Japanese companies are facing a number of uncertainties, such as potential electricity shortages in summer and the European sovereign debt crisis.
Toilet manufacturer TOTO Ltd. runs a large plant in Shiga Prefecture in the Kansai region, where Kansai Electric Power Co. is projecting a 14.9-percent electricity shortage unless two nuclear reactors get restarted by summer.
“We want to contribute to power conservation,” Kenji Ito, TOTO’s executive vice president, said. “But if we are asked to save electricity beyond the capacity of our in-house generators, we have to consider additional measures.”
Masahiro Nishikawa, president of Nishikawa Rubber Co., expressed concerns about the fallout of the European debt crisis on foreign exchange and the real economy.
“As we expected, the yen’s weakening (around March) proved short-lived,” he said. “We cannot tell how far the euro or the dollar will fall. The problem in Europe will affect not only the auto industry but also the global economy in terms of the market and exchange rates.”
Takahide Kiuchi, chief economist at Nomura Securities Co.’s Financial and Economic Research Center, said private-sector investments will hold the key to Japan’s economic recovery.
“The effect of public-works spending to push up economic growth will fall off in the latter part of this year,” he said. “The key to economic revival is how to mobilize private-sector investments before (public investments decline).”
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