Canon Inc.

Canon said third-quarter sales and operating profit both increased year over year. Net income declined, mainly because of valuation losses on liabilities of group companies tied to weaker emerging-market currencies, plus a higher effective tax rate from Japan’s corporate tax change and a lower share of profit from lower-tax countries. For the year, management said exchange-rate changes will negatively affect both net sales and operating profit versus the prior projection. Full-year assumptions were lowered for monochrome office equipment and cameras, while lithography equipment projections were raised; Canon also revised its price-reduction assumption from ¥59.5 billion to ¥51.3 billion and cost-reduction assumption from ¥42 billion to ¥40 billion.

Toshizo Tanaka’s tone was cautious on China and other emerging markets but constructive on Canon’s positioning in developed markets and new products. He emphasized that the company is replacing older models with higher-value ones, expanding strategic product lines, and growing B2B businesses such as network cameras, lithography, and commercial printing. He said Canon will keep pushing sales growth and profitability through new products, cost cuts, and new-business development as it heads into the final two months of its current five-year plan.

Tanaka said exchange-rate changes helped third-quarter sales and operating profit, while price reductions were limited to ¥10.6 billion, about half of last year’s level. He noted cost savings exceeded last year’s level, though expenses rose because of newly consolidated companies such as Axis. On capital and liquidity, Canon said capex will remain below depreciation, and cash in hand at year-end 2015 is projected at around ¥630 billion, or about two months of net sales. He also said inventory was basically flat versus June, with turnover improving by 2 days and camera inventory improving to 55 days, up 3 days versus June.

There was no analyst Q&A in the provided transcript, so the main management commentary centered on revised assumptions and business-unit outlooks. The biggest concern raised by management was the sudden worsening of market conditions in Asia, especially China, which forced lower projections for monochrome office equipment, interchangeable-lens cameras, compact cameras, and printers. Management answered by pointing to stronger developed-market demand, better product mix, raised lithography forecasts, and continued investment in new products and B2B growth areas.