As you can see, there was more red (i.e. downward estimate revision) for Sony this EPS than green (upward). Simple enough.
Our perspective is a bit different. In the past, revenue misses like this would have crushed Sony profits and cash flows. By now, the company would have been engaged in a series of steep costly restructuring.
But that isn’t the case anymore. Operating income is intact, operating cash flow is pretty good. FCF is at a high.
The Bottom Line:
8x LTM FCF for Sony x-SFH, with a net cash balance sheet despite a major acquisition, some cyclical estimate declines, but improving cash generation and a collection of categories that have gone from losers to winners.
The Positives:
- Digital camera profitability
- Guidance for semis that will outperform smartphone market
- Ongoing reduction of Smartphone (Mobile Comms) on estimates (the smaller it is, the less it can hurt)
- TV (HE&S) revenue down but OP up y/y
- OPM in Pictures would have been 2x y/y without the one-time write-off
- Overall OCF target is unchanged
- Profit target unchanged despite the 2% hit to full year revenue guide
The Negatives:
- Yen strengthening isn’t great for direction of Sony profits
- The noise around secular risk in gaming will grow and they didn't do anything to squash that today
- Seems like FGO (Fate Grand Order) finally has put in lower revenue/profits within the music business, we think music will be noisy with the EMI integration but ultimately come out as a plus
- Semis and pictures cash flows not super impressive
Please call or e-mail with any questions.
Ami Joseph
Managing Director
Yosef Vaitsblit
Analyst
