Panasonic Earnings: Cost Reduction Offsets IT and Industrial Weakness; Raising Fair Value 3%

Panasonic’s 6752 operating income for the June quarter was JPY 90.4 billion, up 41% from the previous year, but was actually up 9% excluding the impact of the Inflation Reduction Act on the automotive rechargeable batteries. Overall, the reported numbers were generally in line with expectations, although there were some differences in the progress toward the full-year guidance by segment. While we maintain our sales and operating income forecasts, we slightly lift Panasonic’s fair value estimate to JPY 1,700 from JPY 1,650 mainly due to some minor adjustments on nonoperating items. We maintain our view that Panasonic will continue to achieve solid growth over the next few years due to expanding sales of automotive batteries and recovering demand for electronic devices and factory automation equipment, which we believe are mostly priced in.

In the June quarter, a wide range of businesses were affected by the economic slowdown. The industry segment was particularly weak, with the adjusted operating margin falling to 1.3% from 8.2% in the previous year due to weak demand for IT equipment and factory automation in China. Sales of a wide range of products in other segments also declined from the previous year, including rechargeable batteries for industrial and consumer electronics, electronic components mounting equipment, and housing equipment. On the other hand, the profitability of the avionics business improved faster than expected due to the rapid recovery in aviation demand, and the lifestyle and automotive segments improved their profitability from the previous year due to cost reductions and price revisions, mostly offsetting the shortfalls from the weakness in IT equipment and industrial products. We will review detailed forecasts for each segment after the announcement of the September-quarter earnings results.