Canon Inc. Q3 FY2016 results - strong ¥en halves operating profits

Q3 FY2016 Headlines

  • Overall company Operating Profit fall -48.2%
  • Overall company Net Sales fall -15.9%
  • Imaging System segment year-on-year Net Sales fall -17.9%
  • Imaging System segment Operating Profit fall -28.4%

The headline figures look bad but despite the reduced sales and profits, at least all of the 3 main business segments are running a positive operating profit. The previous outlook for Q3 was clear that the markets were deteriorating and the forecast was revised down. The specific challenges were a slowdown of the global economy, post-Brexit uncertainty, rising value of the ¥en and production issues due to the Kumamoto earthquake. All of these continued to have a negative impact on sales in the third quarter results.

Todays consolidated results for Q3 FY2016 give a further insight into just how difficult conditions are for camera manufacturers. In Q2 FY2016 year-on-year net sales for the Imaging System segment fell -13.5%. Would Q3 see a deterioration or would the business bounce back?

At the beginning of FY2016 projections for the full year 2016 were for a fall of -8% Gross Sales Value and -16% in Total Units in the Imaging System segment. This fall was to be mainly due to the demise of the Fixed Lens Compact Camera that was expected to fall -24% by Units in 2016 under intense competition from the Smart Phone.

Overall Business Results

Net sales across all business segments, excluding the new Toshiba Medical Systems Business, were down -15.9% from the same period the previous year. Operating profit fell a by -48.2%. These results were against a background of a continuing economic recovery in the US, uncertainty in Europe, a slowdown in Asia and stagnation in the emerging markets. Overall a weaker global economy than had been predicted at eh start of the year.

The overall fall in sales was attributed to a fall in the market for Laser Printers, Digital Cameras and Inkjet Printers tied to a rising value of the ¥en. Other Business in the Lithography section showed strong growth as Capital Investment by Semiconductor and Flat Panel manufacturers increase their capital spending.

The strengthening of the ¥en against the Dollar and Euro accounted for 71% of the fall in Net Sales but nearly all of the fall in Operating Profit.

Due to the further weakness in the overall market the projections for overall net sales for FY2016 have now been reduced yet again from Q2 to ¥3360B and operating profits have been reduced to ¥235B. If these predictions are achieved then overall sales will be down -11.6% and operating profit down -33.8% on FY2015.

Imaging Systems Segment Results

Net sales in the Imaging Systems segment were down -17.9% for Q3 2016 year-on-year. As a proportion of overall sales, Imaging fell to 31.8% down from 32.6% the previous year. Operating profit fell by -28.4% to ¥29.9B.

Sales by units of ILDCs (Interchangeable Lens Digital Cameras) have increased by +8% whilst CDCs (Compact Digital Cameras) have declined -52%. ILDCs account for 65% by units and 89% by value of all cameras sold.

The main geographic area of concern was Europe with sales down -22.4% whilst Asia Oceania and Americas were down -17%. Japan was down -13.6% and no forex to blame for that.

Digital Cameras account for 61% of the Imaging Systems segment whilst Inkjet Printers account for 30% of sales. The other 9% is made up by Image scanners, Multimedia projectors, Broadcast equipment and Calculators. Cameras have lost -1% from the previous year.

The highlights of the Camera section are noted as the release of the new EOS 5D MkIV a most widely anticipated camera for the general professional photographer. Sales of the EOS 80D and EOS Rebel T6/1300D were also strong. Mirrorless, an area where Canon have been perceived to be weak, is now a strong focus going forward with the announcement of the EOS M5 high-end system camera.

Compact Cameras have failed with little signs that they will regain lost sales anytime soon. Even so full year prediction is still 4 million units. ILC's a predicted to ship a further 5.5 million units.

R & D

Research and development within the Imaging segment have been decreased from ¥21.2B to ¥22.1B in this quarter year-on-year but is still ahead this year so far.


Lack of stock is one problem that is inhibiting camera sales for some companies in some areas. Canon have decreased inventories over the last 3 months but are now at 49 days worth, still up from just 43 days at the end of Dec 2015. Getting this product to the front line can only help sales.

Exchange Rates

The effect of the fluctuation in the exchange rate and not being able to predict them accurately have causes the biggest change in the financial figures this quarter. During 2015 the average rates were ¥121 per US$ and ¥134 per €. In the 3rd Quarter of 2016, this has changed to ¥102 per US$ and ¥122 per €. Assumptions for Q4 2016 have changed to ¥100 per US$ and ¥113 per €. These assumptions appear to be a little pessimistic given current exchange rates running at ¥104 per US$ and ¥114 per €.


As a company Canon are still very profitable producing a diverse product range that should see them overcome the issues they face with the rising ¥en and changing markets. Shareholders will have to come to terms with reduced profits.

Specifically the Imaging segment is what I am most interested in. Given the launch of two major professional cameras this year, the Interchangeable Lens Camera results should be good and are. The production problems have made things worse in the Compact camera market and it will remain to be seen just how that recovers in the final quarter.

Current forecasts seem to be more realistic now and so barring any further calamity the final quarter should set things on an even keel ready for next year.

Professional photographers appear to be content with the DSLRs on offer but the enthusiast is moving toward the Mirrorless camera. If Canon can forge a large share of this market then they will continue to prosper. However, this cannot be taken for granted as they have much ground to cover to overturn popular thinking that favors Olympus, FujiFilm and Sony.

Canon Inc. share price dropped down -3% at the close of trading.

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