Sony Pictures drags down Sony Q3 FY16 earnings with profits dropping 84%

(note that you can click on all charts for a much higher resolution version)

It’s been a rather tumultuous week for Sony with news coming out that Sony Pictures would be responsible for a nearly $1 billion writedown which you can see in the above profits chart. Though Sony begs to differ, I think Sony Pictures is either quietly being put up for sale or that was the result of a sale falling through which meant Sony had to balance the division out but I’ll leave that for another piece. I’ve already broken down the earnings report for two divisions:

So where does that put Sony as a whole for Q3 FY16? Profitable, but not by a lot. Jon Russell writes this for TechCrunch:

 The Japanese tech giant posted a 19.6 billion JPY ($169 million) profit on revenue of 2,397.5 billion JPY ($20.7 billion) for Q3. Revenue was down seven percent year-on-year, but net profit sunk by 84 percent on unfavorable foreign currency rates and a 112.1 billion JPY ($920 million) impairment charge of goodwill for Sony Pictures, announced earlier this week.

In the wake of the Pictures write-down, Sony lowered its full-year profit expectations by 22 percent to 196 billion JPY ($1.7 billion), despite raising its revenue forecast by three percent. 

Taking Sony Pictures out of the equation, we get a better picture (no pun intended) of how profits break down within each division as you’ll note above. With so much of the global economy in flux, Sony also took a big hit with currency exchange rates like Apple has.

 Changing currency rates had a big impact on many of Sony’s other business units, many of which recorded drops in revenue and operating profit. That included Sony’s home entertainment business saw revenue drop 12 percent to 353.4 billion JPY ($3 billion) with profit down 17 percent. 

As for revenue, things remained either flat or down compared to the year before with Game & Network Services (PlayStation) being the one exception.

It’s also interesting to note the drop in revenue compared to a year ago in Mobile and how it plays into Sony’s overall corporate finance versus Game & Network Services which now accounts for 26% of the business.

Q3 FY2016 (year-on-year)

 Sales: 9.6% decrease (FX Impact: -10%)

  • (–)  Impact of foreign exchange rates
  • (–)  Decrease in unit sales
  • (+) Improvement in the product mix of Still and Video Cameras reflecting a shift to high value-added models

 OI: 1.7 bln yen decrease (FX Impact: -9.2 bln yen)

  • (–) Negative impact of foreign exchange rates
  • (–) Decrease in unit sales
  • (+) Improvement in the product mix of Still and Video Cameras
  • (+) Cost reductions

FY2016 Forecast (change from November forecast)

 Sales: 1.8% upward revision

  • (+) Impact of foreign exchange rates

OI: 9 bln yen upward revision

  • (+) Positive impact of foreign exchange rates

Q3 FY2016 (year-on-year)

 Sales: 12.1% decrease (FX Impact: -10%)

  • (–) Impact of foreign exchange rates
  • (–) Decrease in home audio and video unit sales reflecting a contraction of the market
  • (+) Improvement in product mix reflecting a shift to high value-added models

 OI: 5.2 bln yen decrease (FX Impact: -4.8 bln yen)

  • (–) Negative impact of foreign exchange rates
  • (–) Increase in expenses resulting from the change in the method of calculating royalties and other costs
  • (–) Decrease in home audio and video unit sales reflecting a contraction of the market
  • (+) Improvement in product mix reflecting a shift to high value-added models

FY2016 Forecast (change from November forecast)

 Sales: 2.0% upward revision

  • (+) Impact of foreign exchange rates

 OI: 6 bln yen upward revision

  • (+) Improvement in product mix reflecting a shift to high value-added models

Q3 FY2016 (year-on-year)

 Sales: 16.9% increase (FX Impact: -11%)

  • (+) Significant increase in unit sales of image sensors for mobile products
  • (–) Impact of foreign exchange rates
  • (–) Significant decrease in sales for camera modules, a business which is being downsized

 OI: 5.9 bln yen increase (FX Impact: -14.1 bln yen)

  • (+) Significant increase in unit sales of image sensors for mobile products
  • (–) Negative impact of foreign exchange rates

FY2016 Forecast (change from November forecast)

 Sales: 8.5% upward revision

  • (+) Impact of foreign exchange rates
  • (+) Stronger-than-expected demand for image sensors for mobile products

OI: 34 bln yen upward revision

  • (+) Increase in sales

Q3 FY2016 (year-on-year)

 Sales: 10.3% decrease (FX Impact: -9%)

  • (–) Impact of foreign exchange rates

 OI: 29.0 bln yen improvement (FX Impact: -1.1 bln yen)

  • (+) Absence of the impairment charge related to long-lived assets of the battery business recorded in the same quarter of the previous fiscal year
  • (–) Decrease in sales

FY2016 Forecast (change from November forecast)

 Sales: Remains unchanged from the November forecast

 OI: 3 bln yen downward revision

  • (–) Lower-than-expected cost reductions in the battery business

Q3 FY2016 (year-on-year)

The following analysis is on a U.S. dollar basis

 Sales: 14.1% decrease (U.S. dollar basis: -5%)

  • (–) Significantly lower sales of Motion Pictures
  • (–) Significantly lower theatrical revenues in the current quarter, compared to the same quarter of the previous fiscal year which benefited from the strong worldwide performances of Spectre and Hotel Transylvania 2
  • (+) Significantly higher sales of Television Productions
  • (+) Higher subscription video-on-demand licensing revenues

 OI: 127.1 bln yen deterioration (-1,081 million U.S. dollars)

  • (–) 112.1 billion yen Impairment charge of goodwill (962 million U.S. dollars)
  • (–) Decrease in sales of Motion Pictures

FY2016 Forecast (change from November forecast)

 Sales: Remains unchanged from the November forecast

 OI: 112 bln yen downward revision

  • (–) Impairment charge of goodwill

Q3 FY2016 (year-on-year)

 Sales: 1.8% decrease (FX Impact: -6%)

  • (–) Impact of the appreciation of the yen against the U.S. dollar
  • (–) Decrease in sales of Recorded Music compared to the same quarter of the previous fiscal year which benefited from the record breaking sales of Adele’s 25
  • (+) Increase in sales of Visual Media and Platform due to the strong performance of Fate/Grand Order, a game application for mobile devices

 OI: 0.7 bln yen increase

  • (+) Higher sales of Visual Media and Platform
  • (–) Negative impact of the appreciation of the yen against the U.S. dollar

FY2016 Forecast (change from November forecast)

 Sales: 12.7% upward revision

  • (+) Higher-than-expected sales of Recorded Music and Visual Media and Platform

 OI: 6 bln yen upward revision

  • (+) Increase in sales

Q3 FY2016 (year-on-year)

 Revenue: 0.9% decrease (Revenue at Sony Life was essentially flat year-on-year (293.4 bln yen))

  • (–) Deterioration in investment performance in the general account
  • (–) Deterioration in net gains and losses on derivative transactions to hedge market risk pertaining to minimum guarantees for variable life insurance
  • (–) Decline in net gains on sales of securities
  • (+) Improvement in investment performance in the separate account

 OI: 23.2 bln yen decrease

  • (–) Deterioration in investment performance in the general account at Sony Life (Operating income at Sony Life decreased by 20.6 bln yen to 31.0 bln yen)

FY2016 Forecast (change from November forecast)

 Revenue / OI : Remains unchanged from the November forecast

What do you make of Sony’s Q3 FY16 earnings report?

  • Michaux-O

    Very much appreciate the work you put into this, Sohrab. Curse those pesky currency fluctuations!

    Should be interesting to see what becomes of the pictures division, which seems to be feast or famine dependent on the timing of a Bond/Spiderman film (although I’d like to casually mention how great “Sneaky Pete” on Amazon ((financed by Sony Pictures)) is…).

    Bottom line: I always look to the financial reports with the hope that the various services will provide the company enough windfall to continue to experiment in the electronics wing, and continue to make amazing products like $1000+ Walkmans, 4K smartphones & futuristic Lifespace UX kit.

    Thank you, PlayStation. Game on.

  • Thanks so much man. Kind words like this go a long way to inspire me to keep chugging with the site.