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Canon (NYSE:CAJ) reported record Q1 earnings and appears on track for an eighth consecutive year of record earnings as it upward revised full-year guidance.

Canon's Q1 net income climbed 21% to ¥131.25 billion ($1.11b), or ¥99.25/share as operating profit increased 22% to ¥207.40b ($1.76b), on a 12.6% rise in sales to ¥1.04t ($8.81b).

These figures beat its own projections made in January of ¥120b, ¥185b, and ¥1t, respectively.

Note all $ figures were provided by Canon at a rate of ¥118/$1, for convenience, unless otherwise noted.

Reuters mentions the Nikkei Shimbun projected operating income of ¥210b last week, which Canon missed, but it beat Merrill's estimate of ¥189.9b.

It raised full-year guidance for net income by 2% to ¥505b ($4.28b, +10.9% y-o-y), for operating profit by 3.3% to ¥790b (+11.7% y-o-y), and for sales by 2% to ¥4.54t ($38.5b, +9.2% y-o-y). A Reuters poll of analysts' shows they expected operating profit of ¥784b, but a Nikkei Shimbun report last week estimated ¥810b.

Canon achieved double-digit operating profit growth in digital cameras, office equipment and in its optical business including steppers.

The weak yen contributed ¥23.1b (approx. $196m) to its operating profit.

For the year, Canon expects a ¥/$ conversion rate of 117.55 (vs. 115 previously) and a ¥/€ rate of 155.33 (vs. 150). The conversion rates averaged 119.33 and 156.45 in Q1, respectively, against estimates of 117 and 152. Canon said a 1 yen change against the dollar results in a fluctuatation of operating profit of ¥6.1b and sales of ¥11.3b.

Canon says it had cash and cash equivalents of ¥915b ($7.75b) as of the end of Q1, which is a ¥240.7b ($2.04b) y-o-y decrease, due among other things to a ¥200b ($1.7b) share repurchase.

It offered the following outlook related to industries its business are involved:

[...] demand for both compact digital cameras and digital SLR cameras is expected to continue enjoying robust growth. As for network digital MFDs and laser beam printers, while additional demand is projected for full-color models, severe price competition and shifting demand toward lower-priced models are expected to continue. Within the semiconductor-production equipment market, while gradually increasing orders from chip manufacturers indicates a trend toward moderate recovery, demand for projection aligners used in the production of LCD panels is expected to remain sluggish due to restrained investment by LCD manufacturers.

Ordinary shares of Canon (JP: 7751) gained 1.52% to ¥6,660 ($56.06 ADR equiv. at ¥118.8), ahead of its after-hours earnings release. It has a trailing P/E of 19.48. Based on its guidance for full-year net income of ¥505 billion, it trades at 17.6x forward earnings.

There was bullish sentiment for Canon based on a Nikkei Shimbun report today suggesting Canon would exceed annual net profit of ¥500b for the first time, which it did when it raised its forecast to ¥505b (from ¥495b). Furthermore, Canon was bought in anticipation of a strong earnings report, as it was the first blue chip CE firm to announce, a weak yen was (still is) expected to boost profits, and its shares have lagged both industry peers and the broader Nikkei benchmark in the calendar year.

Its ordinary shares established a calendar year high of ¥6,750 on Jan. 4 and a low of ¥6,020 on Mar. 8.

Its ADRs closed yesterday at $55.34. They have traded between $42.16 (Jun. 13) - $57.32 (Dec. 15) over the past year.

Reuters reports Canon's VP commented at a news conference:

"We expect sluggish growth in camcorders, reflecting the harsh market environment. But overall the camera division will post 9.7 percent sales growth, driven by digital camera demand."

He also reportedly said Canon is planning to begin selling SED TV's later this year, as scheduled, despite patent related issues.

Analyst commentary carried by the media:

Tetsuya Wadaki, Nomura Securities Co. in Tokyo [rating: "buy"]

"The profit forecast is a positive surprise. The projection reflects that Canon's office-equipment business is really in good shape."

Mitsushige Akino, Ichiyoshi Investment Management -- Commented Canon's 'forecasts still look conservative.'

"But investors had been expecting conservative forecasts from Canon and other companies, and these numbers are not likely to weigh on the market."

Canon's Q1 Results and presentation [pdf]

Canon (CAJ) 1-year chart:

Canon-CAJ-chart-04-23-07

Disclosure: The author does not own shares of Canon.

Source: Canon Reports Double-digit Profit and Sales Growth, Raises FY Guidance