Bloomberg News

Hitachi Profit Five Times Forecast on Earthquake Recovery

October 26, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 26 (Bloomberg) -- Hitachi Ltd. profit beat its forecast fivefold in the first half as Japan’s second-largest manufacturer recovered faster than expected from disruptions caused by the nation’s strongest earthquake. The stock rose.

Net income was about 50 billion yen ($657 million) for the six months ended Sept. 30, compared with a July 29 estimate of 10 billion yen, the Tokyo-based company said today in a preliminary earnings statement. Profit was almost double the 27 billion yen average of six analyst estimates compiled by Bloomberg.

Hitachi benefited from surging demand for auto parts, as Japanese carmakers including Toyota Motor Corp. boosted output to make up for production lost after the March 11 earthquake caused shortages of parts and electricity. Cutting fixed costs also helped Hitachi boost earnings, it said today.

“The solid result is driving Hitachi shares higher,” said Yukihiko Shimada, a senior analyst at SMBC Nikko Securities Inc. in Tokyo, who has an “outperform” rating on the stock. “The company’s earnings projection is conservative.”

Hitachi left unchanged its July 29 forecast for net income of 200 billion yen in the year ending March 31, 2012, because it can’t predict the effects of the yen’s appreciation or the floods in Thailand, according to the statement. The company’s adjusted net income results have beaten analyst estimates in five of the past seven announcements, according to Bloomberg data.

Share Performance

Hitachi rose 3.7 percent, the biggest gain since Sept. 16, to 424 yen at the 3 p.m. close of trading in Tokyo. The shares have dropped 2.1 percent this year, compared with a 14 percent decline in the benchmark Nikkei 225 Stock Average.

The company set up a team in April to implement cost- cutting measures including consolidating production and boosting joint purchases. Spokesman Tadashi Hisanaga declined to say today how much the cost cuts contributed to the profit forecast increase. The company will explain details of the cost reduction on Nov. 1 when it releases its formal earnings, Hisanaga said.

First-half operating profit probably totaled 170 billion yen, up 70 percent from Hitachi’s projection, the company said. Sales beat the company’s estimate by 3.4 percent to 4.55 trillion yen, Hitachi said.

A rising yen, which yesterday climbed to a postwar record against the dollar, is prompting exporters to shift their production outside Japan, as the local currency’s appreciation makes their products more expensive. Hitachi may end production of televisions in Japan and ask other companies abroad to make TVs to be sold under the Hitachi brand, the company said in August.

The yen traded at 76.01 per dollar as of 1:20 p.m. Tokyo time from 76.09 in New York yesterday, when it climbed to a record 75.74.

The company plans to increase the number of overseas workers to 120,000, or 36 percent of the total, next fiscal year, from 107,000 or 33 percent, last fiscal year, Hitachi said in June.

--With assistance from Go Onomitsu and Yuki Yamaguchi in Tokyo. Editors: Terje Langeland, Garry Smith

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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