TDK Corporation (TYO: 6762) reported a mixed full-year performance with a slight dip in net sales but an increase in operating income, as noted in their March 2024 earnings call. The company faced a challenging environment with a stable economy in North America but slowdowns in Europe and China, coupled with geopolitical uncertainties.
Despite a decrease in electronics market sales, TDK saw improved profitability in the automotive sector and small rechargeable batteries, leading to a 2.4% year-on-year increase in operating income. The company also outlined a positive outlook for the fiscal year ending in March 2025, with projected increases in net sales and operating profit.
TDK highlighted their focus on growth areas such as energy transformation and digital transformation in their upcoming medium-term plan.
Key Takeaways
- Net sales decreased by 3.5% year-on-year to ¥2,103.9 billion.
- Operating income rose by 2.4% to ¥172.9 billion, attributed to automotive sales and small battery profitability.
- Full year operating cash flow was strong at ¥447 billion, with a notable free cash flow of ¥230.4 billion.
- Projected financials for FY March 2025 include net sales of ¥2,105 billion and operating profit of ¥180 billion.
- The company plans to unveil a new medium-term plan on May 22nd, focusing on profitability and capital efficiency.
Company Outlook
- TDK forecasts net sales of ¥2,105 billion and operating profit of ¥180 billion for the fiscal year ending in March 2025.
- The medium-term plan will emphasize growth investments and shareholder returns.
- Major growth areas targeted are energy transformation, decarbonization, and digital transformation.
Bearish Highlights
- Sales in the electronics market saw a 3.5% decline, mainly due to weaker demand in the ICT and HDD market.
- The global economy is experiencing an economic slowdown in Europe and China, along with Middle East geopolitical uncertainties.
Bullish Highlights
- Operating income improved due to increased sales in the automotive market and better profitability in small rechargeable batteries.
- A ¥25 billion gain was realized from the depreciation of the Japanese yen.
- The company is committed to long-term sustainable value creation despite global economic challenges.
Misses
- TDK recognized one-time expenses of ¥19.8 billion for structural reforms, impacting overall financials.
Q&A Highlights
- The company discussed efforts in rechargeable batteries and HDD heads, which contributed to a reduction in restructuring costs.
- The dividend payout ratio is set at 35%, with an annual dividend of ¥120.
TDK Corporation remains cautiously optimistic about the future, with plans to announce a strategic medium-term plan that will likely bolster their market position. The company's commitment to innovation and efficiency, particularly in high-value products, positions it to navigate through current economic challenges while focusing on sustainable growth and shareholder value.
InvestingPro Insights
TDK Corporation (TICKER: TTDKY (OTC:TTDKY)) stands out in the Electronic Equipment, Instruments & Components industry not only for its operational performance but also for its financial health and investment profile. Here are some key insights based on real-time data and expert analysis from InvestingPro.
InvestingPro Data:
- The company has a market capitalization of $17.4 billion, reflecting its substantial size within the sector.
- TTDKY's P/E ratio is 22.28, indicating that investors may be expecting higher future earnings relative to the current level of profits.
- Gross Profit Margin for the last twelve months as of Q4 2024 stands at 28.66%, which suggests that the company has been effective in controlling the cost of goods sold and has a healthy markup on its products.
InvestingPro Tips:
- TTDKY's valuation implies a strong free cash flow yield, which could be attractive to investors looking for companies that generate significant cash relative to their share price.
- The company has maintained dividend payments for 33 consecutive years, showcasing a strong commitment to returning value to shareholders.
For a more comprehensive analysis, including additional insights and metrics, visit https://www.investing.com/pro/TTDKY. There are 10 more InvestingPro Tips available on the platform, which could further guide investment decisions. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with premium features.
TDK Corporation's recent financial performance and the strategic outlook provided in their earnings call align with the insights gleaned from InvestingPro. The company's focus on profitability and capital efficiency is reflected in its strong free cash flow yield, a key metric for investors. Moreover, the long-standing history of dividend payments underscores TTDKY's reliability in providing shareholder returns, an important factor in an uncertain global economic climate.
Full transcript - TDK Corp (TTDKY) Q4 2023:
Operator: Okay. Thank you very much for waiting. So, it's on time. I would like to start that TDK Corporation Full Year Performance Briefing on March 2024. Today's speakers and attendees is President and CEO, Noboru Saito; Senior Executive Vice President, Tetsuji Yamanishi.
Tetsuji Yamanishi: Hello everyone.
Operator: Corporate Officer, Fumio Sashida. Corporate Officer, Taro Ikushima.
Taro Ikushima: Thank you.
Operator: Corporate Officer, Takao Tsutsui.
Takao Tsutsui: Hello everyone.
Operator: These are the speakers and attendees from TDK Corporation today. Thank you very much.
Tetsuji Yamanishi: Thank you very much for taking time out of your business schedule today to attend our full year performance briefing on March 2024. Thank you very much. I will now give an overview of our consolidated and the business' performance on a full year basis. First of all, as for the key highlights of the full year results, although the global economy remained steady in North America mainly, there was still the growing sense of desalination due to the economic slowdown in Europe and in China, as well as the uncertainty and geopolitical uncertainties in the Middle East. In addition, the yen continued to depreciate against the U.S. dollar and the euro. Under such circumstances, in the electronics market, which affects our business performance, sales decreased by 3.5% year-on-year due to sluggish demand in the ICT and HDD market, caused by prolonged weak final demand and weaker capital investment demand in the industrial equipment market in general. So, it is the 3.5% year-on-year decrease. However, operating income increased by 2.4% year-on-year, updating that the record high profits, mainly due to an increase in sales to the automotive market, resulting from an increase and the production of ExV vehicles, and improved the profitability of small rechargeable batteries for the ICT market. Looking at sales by business segment by market. Sales of Passive Components and the sensors for the automotive market increased due to the shift to ExV and ADAS, while the sales of Passive Components and sensors for the industrial equipment market, where demand remained sluggish and declined significantly. Small rechargeable batteries for the ICT market secured an increase in the profit, despite a decrease in sales due to a drop in selling prices accompanying the decline in the material prices. Sales of HDD heads and suspensions declined significantly, owing to strengthen the demand in the ATDD market, but the signs of improvements began to emerge in the third quarter. One-time expenses of ¥19.8 billion were recognized for the implementation of structural reforms, including optimization of the production capacity in anticipation of the demand environment. Next, I will provide an overview of the full year results, including an increase of approximately ¥101.1 billion in net sales and an increase of approximately ¥25 billion in operating income, due to exchange rate fluctuations. Net sales amounted to ¥2,103.9 billion, down by ¥76.9 billion or 3.5% from the same period last year. Operating income was ¥172.9 billion, up ¥4.1 billion or 2.4% from the year earlier, including one-time expenses of ¥19.8 billion. Income before income taxes was ¥179.2 billion and income was -- net income was ¥124.7 billion. Earnings per share is ¥328.7. As for the sensitivity to exchange rate fluctuations, we estimate that ¥1 change to the dollar will result in an annual change of approximately ¥2 billion and ¥1 change to euro will result in an annual change of approximately ¥600 million. I will continue with an explanation of the full year results by segment. In Passive Components, sales to the automotive market, especially for xEV vehicles increased, but demand from the industrial equipment and ICT markets were sluggish, resulting in sales of ¥565.6 billion, down by 2.3% year-on-year basis. Operating income decreased by 43% to ¥539 billion due to sales volume decline. Sales and earnings of sonic capacitors increased due to higher sales to the automobile market, but earnings decreased due to [Indiscernible] product mix and the lower sales volumes to industrial equipment and the distributors and the sales and earnings, both of the sales and earnings of aluminum film capacitors decreased due to lower sales to the industrial equipment market and the distributors. Sales and operating income of inductive devices decreased, owing to lower sales to industrial equipment and the distributors when sales to the automotive market increased. Sales and earnings of the piezoelectric components and the cycle protection components also declined for productive for the industrial equipment market as well as the distributors, due to the decrease in the demand and both sales and income of high-frequency components decreased due to lower sales to the ICT market. In addition, a one-time expenses of ¥7.4 billion was recognized for the period. Next, this and the Sensor Application Products business, net sales were ¥180.5 billion, up by 6.5% year-on-year, and operating income was down by 43.7% or ¥60 billion, including one-time expenses of ¥3.3 billion. The profitability of the temperature and the piezo sensors improved, thanks to increased sales to the automotive industry and both sales and profits of magnetic sensors increased. Due to decreases, due to increase in sales of home sensors and TMR sensors to the automotive industries as well as to smartphones. On the other hand, both sales and profits of MEMS sensors decreased due to lower sales for the smartphones and the industrial equipment, although sales of motion sensors for automobiles expanded. Next, in the Magnetic Application Products business, net sales were ¥184.2 billion, down by 8.2% year-on-year and operating income was a loss of ¥35.6 billion, including a one-time expenses of ¥6.5 billion. And the HDD head and suspensions business, HDD demand continues to be sluggish, with the total HDD demand down by 23% from the year earlier. And in particular, the total new line HDD demand down by 30%. As a result, sales volumes of both heads and suspensions for HDDs have fallen significantly from the previous year, and we had to recognize sales decline and operating loss again. Sales of magnets declined due to the lower sales in the automotive market and for industrial equipment and of course, profitability improvement has not been as expected, due to slow progress in productivity improvement. Next in Energy Application Products. Net sales were ¥1,121.7 billion, and operating income was ¥195.7 billion, including a ¥2 billion of one-time expenses, a 4.4% decrease in the sales from the previous year, but 32.7% increase in income. In rechargeable batteries, although sales volume of small batteries for smartphones increased. Total sales decreased due to lower selling prices and the price discount caused by falling material prices, and reduced sales of medium-sized batteries due to business transfer to the joint venture. However, the company secured an increase in the profits due to volume growth, rationalization effects and foreign exchange gains. Both sales and profits of the power supplies for industrial equipment increased and sales to industrial equipment such as the semiconductor manufacturing equipment and the medical equipment increased in response to the backlog of orders, while the profitability of power supplies for EVs improved. Next, I will explain the factors behind the change in the sales and operating income by segment from the Q3 to Q4 of the current fiscal year. In the Passive Components segment, sales declined by ¥2.5 billion or 1.7% from the Q3 and operating income fell by ¥14.9 billion or 80.1% on a Q-on-Q basis. Sales of Ceramic capacitors has increased due to higher sales for automotive applications, but operating income decreased due to the increased expenses and for the production enhancement. With both sales and operating income of aluminum film capacitors decreased due to lower demand in the industrial equipment market and the post sales and operating income of inductive devices also decreased, owing to lower sales and the oil markets, both sales and income of high-frequency components decreased due to lower sales in the ICT and industrial equipment markets, while the both sales and income of piezoelectric and circuit protection component remained almost flat, thanks to higher sales in the automobile market, despite the lower sales in the industrial equipment and ICT market. And the restructuring cost of approximately ¥400 million in Q3 and about ¥7 billion in Q4 were recognized. And next, Sensor Application Products, sales declined by ¥4 billion and operating income decreased by ¥8.4 billion. Sales of temperature and pressure sensor remained almost flat, while the sales of magnetic sensors for the automotive industry increased. But the peak of demand in the ICT market has passed peaked out, so resulting in lower sales as well as profits. In addition, one-time expenses of ¥3.3 billion was recognized in Q4. Next in the Magnetic Vacation Products segment, sales increased by ¥2.6 billion or 5.2% and in operating loss. And now we have recognized about ¥3.3 billion and recognize it in Q4. Next, in the Magnetic Application Products segment, sales increased by ¥2.6 billion or 5.2%, as I mentioned earlier, and the operating loss increased by ¥2.1 billion. Sales increased by approximately 8% and HDD head sales volumes due to the recovery of overall demand for near-line HDDs, and by approximately 10% in suspension sales volume, resulting in an overall increase in head sales and the reduction of the deficit. As for Magnets, sales the decline and the operating loss expanded. One-time expenses about ¥900 million were recognized in Q3 at ¥4.7 billion in Q4. Next, the Energy Application Private segment, sales declined by ¥66.4 billion and operating income decreased by ¥25.2 billion. In rechargeable batteries, sales of smaller batteries to the ICT sector declined significantly due to seasonality, resulting in lower sales and profits. Sales of power supplies for the industrial equipment remained steadily with both sales and profits decline and the power supplies for EVs. One-time expenses of ¥2 billion were recognized in Q4. Next, the factors of changes in operating income of ¥4.1 billion on a full year basis. While rechargeable batteries saw an increase in profit due to the growth in sales volume, the decrease in the passive components was largely due to a decline in volume, deterioration in product mix, and reduced the capacity utilization and the decrease in HDD head sales volume, resulting in a profit change of ¥57.7 billion due to the sales fluctuations. The rationalization and cost reductions and the structural reform effect of ¥42.4 billion offset the ¥41.5 billion decrease in profit due to changes in the selling prices. SG&A expenses were reduced by ¥20 billion through several cost streamlining efforts, mainly in rechargeable batteries and HDD heads and the one-time expenses, such as restructuring costs decreased by ¥15.9 billion from the previous year. ¥25 billion gained by the depreciation of Japanese yen also contributed to the total increase of operating profit of ¥4.1 billion. Next, I will explain the cash flow. The full year operating cash flow was ¥447 billion. Investment cash flow, including CapEx was ¥216.6 billion. And free cash flow was ¥230.4 billion, a significant increase from the ¥28.4 billion free cash flow in the previous year. In addition to a significant increase in operating cash flow due to a decrease in the working capital, including the ongoing inventory optimization based on the market and demand conditions, capital expenditures were also reduced by approximately by ¥40 billion from the initial estimate of ¥216 billion, as a result of careful assessment of demand trend. As a result, free cash flow increased significantly from the previous fiscal year to ¥230.4 billion. In addition, the financial target of a positive free cash flow after shareholder returns set forth in the previous midterm plan was also achieved, even exceeding the initial target by approximately ¥50 billion. And the new midterm plan will also aim to increase free cash flow through further improvements of capital efficiencies. That's all my presentation today. Thank you very much for your attention.
Noboru Saito: Hello. I am Noboru Saito, President and CEO. Thank you very much for your time for the occasion. I will explain our full year projections for fiscal year, March 2025. First, allow me to explain our consolidated forecast for FY March 2025 as well as the market background behind our forecast as well as our planned production volume of the major devices. As for the automobile, we are assuming the market size, including commercial vehicles and [indiscernible], 91 million units level, up 2% year-on-year. Production of EVs and an eco-friendly cars and having a major impact on TDK are continuously expanding. For the entire xEV in the market, we are assuming 26.4 million units level, up 21%. As for smartphones, representing the ICT market, we are assuming 1,144 million units level. This is a significant increase of -- slight increase rather of 1% from the previous period. As for the HDD market as a whole, we expect an increase of 3% or around. As for the production volume of near-line HDDs for data centers, a recovery trend is being observed from the last year's rapid decline and we believe it will be around 51 million units, up 31% year-on-year. As for notebook pieces and tablets, we are assuming for growth of 3% to 4% positive side. On the other hand, we are not seeing a recovery for the overall FM equipment and the industrial equipment market and it will be rather in a weak, throughout the year. Production volume of major devices, excluding industrial equipment seem to have hit the bottom, now going up from the previous year, but the macroeconomic environment is still very unclear. So, we need to be extremely careful as to the demand for parts and components going forward. With the production volume of those major devices as well as in order situations. Our outlook for the consolidated performance for FY March 2025, full year net sales being ¥2,105 billion, operating profit being ¥180 billion, profit before tax being ¥184 billion, and net profit attributable to owners of parent being ¥128 billion. As for the exchange rate, we are assuming ¥140 to the U.S. dollar and ¥156 to the Euro. Now, allow me to explain our shareholder returns. In the new medium term plan, considering the changes in the business environment, investment for growth business and ROE and others, we plan to have shareholder returns with the dividend payout ratio of 30%. Now, it is going to be raised to 35% according to our plan. The annual dividend is expected to be ¥120 increase of ¥4. Next, allow me to explain our projections for cost items. CapEx for the fixed assets is ¥250 billion. For depreciation and amortization, ¥190 billion, and for R&D expenses, ¥220 billion are expected. For your further information, as for the R&D spend due to the partial revision of categories, both in SG&A and R&D expenses, it is expected to increase about ¥30 billion for FY March 2025. Next, I will explain our assumptions for ups and downs by segments for FY March 2025. As on the Passive Components segment, the sales may grow driven by the xEV progress, but due to the assumed decline in the selling price of MLCC and others, as well as the sluggish market for the industrial equipment. We are now assuming the growth of 4% to 7% for the segment as a whole. In the Sensor Application Products segment, magnetic sensors such as TMR and Hall, which are the firm, thanks to the automotive and ICT applications. Actually they're related, demand is expected to grow, temperature and pressure sensors. On top of that, MEMS microphone sales growth would result in the expected revenue growth for the segment of 8% to 11%. As for Magnetic Application Products segment, we are observing that the production volume of HDDs and [indiscernible] HDDs for data centers appear to have hit the bottom. Though we could expect net sales growth, but due to the drop in the magnet sales, we are now expecting to have a drop in sales in the range of minus 2% to plus 1%. In Energy & Application Products segment, we are observing the demand and has hit the bottom of smartphones, notebook pieces and tablets, because we are expecting a certain level of drop in selling prices due to the price decline of raw materials of rechargeable batteries, so we are now assuming the segment would be minus 4% to minus 1% year-on-year. Next, allow me now to explain the outline of our new medium term plan, which we plan to announce on May 22nd, next month. The current medium term plan was made by [Indiscernible] from what we want to be, namely from our long-term vision. So, this is going to be our foundation building phase, where we would like to build a firm foundation and would like to solidify our foothold. As for the company-wide financial goals, besides the same operating profit ratio, we are going to pay more attention to ROIC instead of an ROE. That's we're going to aim at improving profitability of our capital invested. In order to realize these goals, for the priority growth businesses, we will continue our aggressive investment into -- in order to further improve our profitability. For the challenging businesses, we will quicken our activities in order to execute appropriate measures so that we could further improve our capital efficiency. We'll be more strongly aware of the capital costs and carry out a more proactive business portfolio management. Among the major growth businesses are; first, within our EX trend in place, energy transformation. We will continue to invest into MLCC and in other passive components, which have a high reliability where we can expect the demand to grow. So, we could continue to strengthen our competitiveness. So we could surely go for the demand. Decarbonization and renewable energy are now progressing. Demand for midsized renewable batteries are expected to enjoy the growth in -- not only for home, but for commercial ESS and USS for the data centers. So, here, we would like to maximize the joint venture synergies so that we could expand ourselves on the mid to long-term basis. With the digital transformation direction trend and further advancing, in line with the AI-enabled devices becoming popular as well as the increased demand for the affordable smartphones and other high future devices. We will further expand the sales of high value-added products such as silicon anode and lithium batteries, TMR sensors, and MEMS microphones. Next, I will explain our outlook for the free cash flow, which is going to be our continued focus in the new medium term plan. In the previous and midterm management plan period, MLCC and other passive components business, and TMR sensor and other sensor application products business improved profitability. Furthermore, by improving working capital, our operating cash flow tended to grow. Furthermore, in the final fiscal year, with the decreased investment in energy application products, we were able to generate ¥156 billion in cash flow for the three cumulative years. In the new mid-term plan, we will further improve our possibility of the capital invested. We will further reinforce our business portfolio management. We focused on our investment into growth, small-sized rechargeable batteries, passive components and sensor application products enjoyed improved profitability. And we believe during the new midterm period, we believe we can further generate higher free cash flow. And the free cash flow after the shareholder returns will be used for growth investment and then further reinforce shareholder returns. I am planning to explain details of these financial initiatives, as well as ESG and other non-financial initiatives on next month, May 22nd. On the short-term basis, the global economy is still faced with great uncertainties, but TDK will define in three years starting from FY March 2025 as a period for us to build a strong foundation and solidify our footsteps on a long-term basis, we will aim at a sustainable value creation. With this, I'd like to conclude my explanation. Thank you indeed for your kind attention.
End of Q&A:
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