Japanese Exporters Look Poised to Profit from Weak Yen

Fiscal Q1 earnings season will kick off in about a month. There's growing anticipation of upward revisions among exporters due to the weak yen, which is trading at a 4.5-year low against the U.S. dollar and an all-time low against the euro.

In this post, I've gathered the forex forecasts for nine blue chip "exporters" with ADRs trading on the NYSE/Nasdaq -- with the exception of Nintendo (NTDOY.PK).

In addition to comparing their forecasts versus current forex rates, I also listed their fiscal year (ended March) profits from forex with US$ values converted at ¥118/$1 for convenience. Lastly, I calculated their respective sales (and operating profits when available) by geographic segment from last fiscal year as a percent of total results.

The forex estimates in the second and third columns in the table below are for full year (fiscal) 2008 (ending in March). The "∆Current" columns refer to the amount the US$ and € are trading above the forecast of each company. Note "OP" stands for Operating Profit. The use of "Americas" typically includes the U.S., Canada and Mexico, but in some cases, may include S. America, or the U.S. standalone.

Click to enlarge table

Canon (CAJ) has revised its forex forecast per its Q1 earnings release (a quarter ahead as the other companies were releasing FQ4 results). The forecast above is its revised version, compared to its prior estimate of ¥115/$ and ¥150/€.

It is hard to say if the expected gains from forex have been factored into their stock prices. It is equally difficult to estimate what quarterly forex gains might be.

Note a weaker yen causes prices of imported raw materials to increase, thus negatively impacting financials. Also, despite the discrepancy in the above forecasts versus current rates, it is still possible to report a forex loss, as some companies have, due to hedging activity. It goes without saying a weaker yen negatively impacts the prices of ADRs.

Forex profits should also be considered in light of re-investment in overseas local operations.

Don't forget the impact on cash and equivalents.

Note: The above data was compiled from fiscal year end earnings releases and is assumed to be accurate. Please verify any data before making trading/investment decisions.

Disclosure: The author does not own shares of any companies mentioned in this article.

Comments

[John Gaats:]

TM has been a net loser this year. Is it because our investors conveniently ignore all potentials you pointed out here? Even without the currency effect, dominate position in the global car market is something to consider for the investors. However, nothing seems to matter.

2007 Jun 25 01:57 PM

[Steven Towns:]

Hi John,

Thanks for your comment and question. Toyota's ordinary shares (JP: 7203) are down about 4% ytd, compared to approx. -8% for its ADRs. The difference equals almost exactly the 4% weakening of the yen against the dollar ytd.

So why is Toyota down in its home market despite sustained growth and even surpassing GM by some measures? This is quite simply, in no particular order, due to (1) its run-up, almost doubling in the past two-years, (2) channeling of investment funds to overseas investments offering higher yields, (3) propensity to take profits quickly and frequently, (4) concern about the U.S. real estate market (inc. sub-prime) and slowing of overall U.S. economy, (5) higher gasoline prices hurting sales of higher margin autos, or at least boosting sales of lower margin autos in U.S.; weak domestic market w/ real growth only in the mini/sub-compact car (low margin) and luxury segments (high-margin, low volume), (6) uncertainty of FOMC policy, a rate hike would increase consumers' borrowing costs, (7) tough competition in BRIC economies, where Toyota has been somewhat of a late entrant, (8) high/rising commodity and materials costs mean imports and component costs are higher, possibly exacerbated by the weak yen, ....

There's a lot weighing the stock down, but it's not exactly tanking by any means. Obviously ADR holders are suffering more due to the negative forex impact.

2007 Jun 25 09:08 PM