Panasonic Cuts Earnings Outlook

Posted by: Kenji Hall on November 27, 2008

With the world’s financial markets still in crisis and analysts forecasting a grim holiday season for tech makers, this is hardly the time to be talking about growth targets. But Panasonic’s top finance executive, Makoto Uenoyama, said on Nov. 27 that the Japanese tech conglomerate would try to live up to its promises for 2010. It didn’t seem to matter that those promises were made more than a year and a half ago before the U.S. subprime mortgage market collapsed and the banking sector’s troubles emerged. “We are doing everything we can to meet or get close to our three-year profit targets and our goal of 10% return on equity,” Uenoyama told journalists and financial analysts in Tokyo, via a live telecast.

This year will be painful, though. Uenoyama warned that the Osaka-based company’s previous earnings predictions for this year would be impossible to attain. Panasonic lowered its net earnings forecast by 90% for the fiscal year March 2009 through and announced $1.4 billion in restructuring measures to counter an expected drop in sales of flat-panel TVs and digital cameras.

The company now predicts a mere 30 billion yen ($315 million) in annual net profits, not the 310 billion yen ($3.26 billion) it had forecast previously. That figure is a fraction of the 282 billion yen that Panasonic raked in last year. Operatng profit is also expected to take a hit this year, coming in at 340 billion yen ($3.58 billion), instead of the 560 billion yen ($5.89 billion) it had previously forecast, and the outlook for sales was lowered by 7.6% to 8.5 trillion yen ($89.5 billion). In recent weeks, Sharp and Sony also lowered their earnings forecasts for this year.

Panasonic blamed its problems on stock market losses, the global recession and the yen’s strength. Uenoyama also said that Panasonic thinks that prices of its TVs will have to be cut by as much as 30% this year—and even that might not help the company reach this fiscal year’s target of selling 11 million flat-panel TVs.

And yet Uenoyama tried to assure investors that Panasonic’s top brass hadn’t given up looking for ways to cut costs and close down unprofitable businesses. He said the company was in the process of reviewing how to shift the workload of its global factories so that the facilities that it’s relying on the most efficient facilities. And he touched on hopes that restructuring would help the company get through the hard times.

There was another question mark: Panasonic’s bid for rival tech company Sanyo Electric. Its offer to pay Sanyo’s three biggest investors--Goldman Sachs, Daiwa SMBC and Sumitomo Mitsui Banking Group--120 yen per share would leave it with $7.8 billion less cash. Nomura Securities analyst Eiichi Katayama asked Panasonic’s Uenoyama for some idea about how and how soon the company expected to recoup that kind of an investment. It was a reasonable question, especially considering that two of Sanyo’s three key investors have rejected Panasonic's offer as too low, raising the possibility of a deal sweetener. But Uenoyama declined to comment, citing the ongoing negotiations.

Panasonic fell 4.7 percent to close at 1,284 yen on the Tokyo Stock Exchange, before the announcement on the forecast. The benchmark Nikkei 225 Stock Average gained 2 percent.

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