Like many businesses in Japan, March 31 is the day the fiscal year ends for most Japanese copier and printer makers and a few weeks later we begin learning how the respective companies did. This year was no different, so in the days just before this magazine went to press, Epson, Fujifilm, and Ricoh reported their numbers for the fiscal year just ending. Canon, which has a fiscal year that ends December 31, was the first Japanese vendor to report putting forth its first quarter earnings data on April 27. And as of this writing, I was still waiting to hear from Brother, Konica Minolta and Oki and expect to write about them in the next issue of ENX.
Most of the Japanese companies reporting in April said that business was good but indicated the market is weakening. Many said that they struggled to meet their targets in the fourth quarter especially in Japan. Buoyed by the devalued yen, which has remained weak since 2013, the Japanese hardware manufacturers continue to enjoy a bit of a competitive edge over their U.S. rivals. Revenues for the various firms are not surging as they have over the past couple of years, however, and profits appear to be feeling downward pressure. Overall, it looks as if demand is beginning to flag, although there are some pockets of growth.
The First Reports
The industry’s initial earnings calls in April were downbeat especially those from the U.S. manufacturers. Both Xerox and Lexmark reported that their respective businesses performed poorly during the first three months of 2015 due in part to the strength of the greenback against the yen. Print volumes also dropped along with consumables sales. Canon reported net sales declined slightly year-over-year but net income slipped more steeply. The company lowered its net sales and net income forecast for fiscal 2015 but that was mainly due to the company’s ailing camera business.
The first numbers to cross my desk came from American hardware manufacturers and did not augur well for their Japanese counterparts. Xerox’s equipment revenue plunged 13 percent year-over-year in the first quarter of FY15 to $624 million as prices declined and demand for low-end units and production equipment flagged. The firm said that the total number of pages printed with its machines dropped along with demand for consumables. Xerox revised its guidance for the year downward and now says its revenue this year will be down 1 percent instead of remaining flat compared to last year.
Lexmark then delivered its own lackluster earnings report saying first-quarter revenue, margins, and earnings declined year-over-year. The firm said total hardware and supplies sales shrank by 9 percent and 6 percent, respectively, to $152 million and $568 million. Its all-important laser business was ailing and total revenue from hardware sales dropped 9 percent as toner cartridge sales dipped 2.3 percent. Lexmark blamed declining laser supplies revenue on unfavorable currency exchange, saying that laser supplies revenue was up 5 percent in constant currency.
As noted, Canon’s camera business was a drag on the firm’s earnings during the first quarter of FY 2015 but unlike its American competitors, hardware and consumables sales were up. Net sales increased 3.9 percent to ¥529.1 billion (about $4.4 billion) for Canon’s Office Business Unit, which is responsible for marketing various devices including office MFDs, laser printers and MFPs, production systems, continuous-feed printers, and document solutions. Net sales of Canon’s monochrome copiers rose 4.1 percent, while color copier sales were up 7.5 percent, which resulted in an overall net sales increase for copiers of 6.0 percent. Net sales of laser printers were also up increasing by 4.5 percent over the first quarter of last year.
The results were not as good from Canon’s Imaging System Business Unit, which is responsible for desktop and large-format inkjet printers and photography products like digital cameras, camcorders, lenses and commercial photo printers as well as scanners, projectors, and calculators. Net sales totaled ¥262.7 billion (approximately $2.2 billion) in the first quarter of 2015, a 10.3 percent decline from the ¥292.8 billion recorded in the year-ago period. The other numbers from the Imaging System Business Unit all went in the wrong direction with its operating profit plunging 30.7 percent year-over-year to ¥29.1 billion and its operating margin shrinking to 11.1 percent versus 14.4 percent in the year-ago period. Inkjet printer unit shipments declined 3 percent compared to the first quarter of last year and net sales were off 4.5 percent. Although U.S. sales of Canon’s MAXIFY business inkjets and units that support mobile devices were up, it was not enough to offset declining inkjet sales in Japan and various emerging markets.
Canon’s crummy camera and inkjet business forced the company to cut its overall net sales forecast from ¥3.90 trillion to ¥3.86 trillion for the current fiscal year and adjust its net income downward from ¥260.0 billion to ¥255.0 billion. The company left its operating income forecast unchanged, however, at ¥380.0 billion. While Canon says its inkjet business will not grow this year, it anticipates continued moderate growth in demand for MFDs, mainly color models along with moderate growth in laser printers sales in FY 2015.
Ricoh Misses
After seeing its revenue growth slow throughout the past fiscal year, Ricoh had a surprisingly bad fourth quarter, which caused the firm to miss its revenue, operating profit, and net profit targets for the fiscal year ending on March 31. Ricoh’s quarterly year over-year revenue declined for the first time in nine consecutive quarters during Q4 (see Chart 1) causing Ricoh to come up short of its projected performance after confirming in January that sales and profitability were on track to show improvements for the full fiscal year.
On April 28, the company reported that despite growing total sales to nearly ¥2.232 trillion ($18.8 billion), up 1.7 percent from ¥2.196 trillion one year ago, Ricoh’s operating profit for the year was down 3.8 percent from ¥120.3 billion in the year prior to ¥115.7 billion ($973.4 million) in part because SG&A expenses increased 5.1 percent due to the yen’s depreciation and certain acquisitions. Ricoh’s Imaging and Solutions segment, which consists of Office Imaging, Production Printing, and Network System Solutions, accounts for the bulk of the company’s sales. For the full year, the Imaging and Solutions segment revenue was up a modest 1.6 percent to ¥1.997 trillion ($16.8 billion). The firm’s full-year net profit was ¥68.5 billion ($576.3 million) versus ¥72.8 billion one year ago, a 5.8 percent decline. These numbers fell short of Ricoh’s outlook for operating profit of ¥140.0 billion and net profit of ¥80.0 billion.
Ricoh placed much of the blame for its declining revenue on drooping domestic sales, which were down 7.2 percent for the year. With sales in the Americas up 10.1 percent, the company indicated that the U.S. economy is enjoying a solid recovery while the European economy “showed signs of a rally.” Ricoh reported sales in the EMEA region were up 2.6 percent. In addition to slumping domestic sales, the firm saw a slowdown of growth in emerging markets such as China, although total sales in Ricoh’s so-call “Other” region grew by a healthy 15.7 percent. The overseas sales growth owed much to the favorable currency exchange, and Ricoh reported that while overseas sales were up 7.9 percent, that growth would have been tamped back to a more modest 1.2 percent in constant currency.
Breaking down its printer and copier businesses, Ricoh said sales of its office imaging equipment increased 2.2 percent year-over-year to about ¥1.51 trillion—or $12.7 billion. Again, Ricoh credited the yen’s depreciation for the gains along with an uptick in demand for color MFPs both domestically and overseas. Ricoh claims it has managed to hold onto the number-one slot in terms of global A4 color MFP market share, and said it is doing its best to expand and maintain market share in other MFP categories as well. An increase in sales of color cut-sheet production printers along with increasing demand for parts and services combined to drive sales of production printing machines up 6.6 percent to ¥191.9 billion ($1.6 billion).
Ricoh expects to continue to grow during the current fiscal year ending in March 2016. The company forecasts ¥2.4 billion in sales, ¥140.0 billion in operating profit, and ¥83.0 billion in net profit. If achieved, this will represent a 7.5 percent uptick in sales, 20.9 percent growth in operating profit, and 21.1 percent growth in net profit over what Ricoh achieved in the year just ended.
Good Year For Epson, But…
Like Ricoh, Epson’s fourth quarter was not as strong as the company had hoped, and as a result some of the firm’s full-year numbers fell short of its earlier guidance. For the full-year ending on March 31, Epson reported revenue of ¥1.086 trillion, which is approximately $9.0 billion. The firm’s revenue grew year-over-year by 7.7 percent compared with ¥1.008 trillion in total revenue the year prior but fell just shy of the ¥1.09 trillion target Epson set back in January. Epson’s full-year business profit, which similar to operating income, grew 12.4 percent to ¥101.3 billion ($842.8 million) versus ¥90.1 billion in the year-ago period. However, business profit fell 3.5 percent short of the firm’s forecast of ¥105.0 billion. Epson’s profit for fiscal 2014 was ¥112.8 billion ($938.5 million), up 33.6 percent from ¥84.4 billion in the prior fiscal year and exceeding the firm’s target of ¥111.0 billion.
In 2013, Epson adjusted its business plan through the current year in order to maximize the potential of its inkjet business. The goal of the new plan was to improve the model mix in the SOHO segment, accelerate the deployment of office inkjets, and expand Epson’s commercial printer business. The firm appears to be executing on its revised business plan and the results are good (see Chart 2). In fiscal 2013, sales grew 17.9 percent and the operating income skyrocketed nearly 300 percent as the firm turned a net loss the year before into net income. Growth last year was not as strong as in 2013 but it was nonetheless still impressive, and the firm managed to top the profits it delivered in 2013, setting a new high for the company.
We’re most interested in the performance of Epson’s Information-Related Equipment business, which includes its large-format inkjet machines and the assorted desktop inkjet, POS, impact dot matrix, and page printers the firm markets and all the related consumables for the various devices along with its color image scanners, visual communications systems, commercial and label inkjet printers. For the year, the Information-Related Equipment segment brought in ¥907.2 billion ($7.5 billion) in revenue, which represents a 7.9 percent year-over-year increase. The segment’s profit was ¥133.6 billion ($1.1 billion), up 8 percent from last year. The printing systems business brought in ¥699.7 billion ($5.8 billion), which is up 7.5 percent from the previous fiscal year. Epson said that this was due in part to favorable currency exchange.
Inkjet printers accounted for 74 percent of Epson’s printing systems revenue in fiscal 2014, up from 72 percent the year before. Revenue from inkjets grew despite a decline in shipments, indicating that the firm is raising the average sales price of these machines. Unit shipments of devices with large-capacity ink tanks have gone up sharply since their introduction in 2010, climbing to over 12 million units last year. Unit shipments of office inkjets remained steady in fiscal 2014 at under 3 million units, about the same as in the year prior. Due to all the new introductions made over the past year or so, Epson anticipates unit shipments of office inkjets will grow in fiscal 2015. Regionally, Epson said that demand for its inkjet devices remained firm in Europe last year but decreased in both Japan and the Americas. In the large-format category, demand was firm in the United States, moved sideways in Europe, and was down in Japan.
For all of fiscal 2015, Epson projects revenue of ¥1.13 trillion, a business profit of ¥102.0 billion, and profit for the period of ¥70.0 billion. If achieved, these targets will represent an increase of 4.0 percent, an increase of 0.7 percent, and a decrease of 37.9 percent from last year. The firm expects its business profit will be depressed due to temporary factors such as about ¥30 billion from the revisions of its pension system and the sale of fixed assets; hence, the sluggish growth expected for 2015’s business profit and the anticipated decline in profit for the period.
FujiFilm Closes the Year with a Flourish
On April 30, FujiFilm Holdings reported that it had revenue of about ¥2.493 trillion ($20.8 billion) for the year ended in March, up 2.2 percent from ¥2.440 trillion in the year prior (see Chart 3). The firm’s revenue also exceeded the guidance it provided in January, which called for revenue of ¥2.48 trillion. Likewise, its operating income climbed from 22.4 percent increase from ¥140.8 billion to ¥172.4 billion to beat the earlier ¥167.0 billion full-year operating income projection. Net income grew a robust 46.4 percent year-over-year to ¥118.6 billion, up from ¥81.0 billion in the previous fiscal year. Like the other numbers, Fuji Xerox’s net income exceeded the firm’s guidance provided in January of net income of ¥110.0 billion.
Operated by the Fuji Xerox Company, Fujifilm’s Document Solutions business is the one we’re most interested in because it is responsible for the sales of office copiers and MFPs, printers, production printers and services, office services, paper, and consumables. Document Solutions’ full-year revenue was up 4.0 percent from ¥1.133 trillion in the prior fiscal year to ¥1.178 trillion for the year ending in March, which about $9.8 billion. The unit’s operating income rose to ¥101.3 billion from ¥96.0 billion, which represents an increase of 5.6 percent, and the operating income grew 5.6 percent to ¥101.3 billion versus ¥96.0 billion in the year prior. The operating income was adversely affected by continued price declines and an increase in the cost of imports stemming from the yen’s depreciation against the dollar.
According to Fujifilm, total sales volumes and revenue increased year-over-year for its office products business. Overall, sales volumes of color office products increased while sales volumes for monochrome products decreased. Fujifilm said that sales volumes of both color and monochrome office products increased in Asia-Oceania but both color and monochrome sale volumes decreased to Japan. Its sales volumes of shipments to Xerox reflected a slight uptick for color and decrease for monochrome units in the business segment as a whole thanks to sales of MFP units. Like Epson, overall sales volumes of Fuji Xerox office printers were down last year but revenue increased suggesting the company has increased the average sales price of its printers. Sales volumes of both monochrome and color printers to Xerox decreased. Fujifilm’s production services business had flat sales compared with the prior fiscal year.
For the fiscal year ending on March 31, 2016, Fujifilm anticipates revenue of ¥2.58 trillion, an operating income of ¥190.0 billion, and net income of ¥120.0 billion, which would represent year-over year increases of 3.5 percent, 10.2 percent, and 1.2 percent, respectively. If achieved, the revenue growth will be slightly higher than in the fiscal year just ended, but year-over-year growth in operating and net income is expected to be more modest than in the year ended in March 2015. The Document Solutions business is expected to bring in revenue of ¥1.22 trillion and operating income of ¥105.0 billion in the year ahead. Fujifilm aims to increase sales by shipping more new products to emerging markets and expanding global services and production services.
Things Are Cooling Off
Reviewing the performance of the companies during the opening months of 2015 reveals that markets are softening. Of course, overall economics drive hardcopy markets and not all the news we are hearing about the global economy is good. The U.S. is among the strongest in the world, but job growth here is not robust and there are signs that GDP growth is slowing. Europe is wrestling with a number of problems and the specter of recession dogs the region. Other important markets, including China, Japan, and Russia, are all wrestling with different sets of problems each unique to the individual market and as a result I don’t think any of them will offer OEMs any growth in the short-term.
The good news is that while few economies are enjoying strong, robust growth, few (except perhaps Russia) appear to be in real trouble. As a result, it seems that manufacturers are expecting conditions to remain more or less stable. A few years ago, when we were in the teeth of the Great Recession, some clever person coined the phrase “flat is the new growth.” This is an apt phrase for the hardcopy industry, as print volumes continue to fall, which in turn weakens demand for machines that generate hardcopy. With demand down, flat is about the most we can hope for.
It will be interesting to see how the remaining Japanese firms did in their last fiscal year. I suspect that like Canon, Epson, Fujifilm, and Ricoh, the other vendors such as Brother, Konica Minolta, and Oki did okay last year and business was up. But I suspect they will all say moving into the new year that their business was off. By the looks of market conditions during the first few months of 2015, it seems safe to say we are not going to get a banner year. Let’s face it; a weak yen can only take manufacturers so far; end users need to print more and that simply is not happening.
