Komatsu Warns of Dwindling Profits on Yen, China Slowdown

  • Hitachi Construction CFO says market won't bottom until 2017
  • Japanese companies follow Caterpillar in cutting forecasts

Komatsu Ltd., the world’s No. 2 maker of construction and mining equipment, said net income could drop by a third this year as demand flags for its products in China and other emerging economies and as the yen has strengthened.

Net income fell 11 percent to 137.4 billion yen ($1.2 billion) for the year through March as sales dropped 6.3 percent to 1.979 trillion yen, according to a statement Wednesday. The Tokyo-based company forecast profit could dwindle to to 92 billion yen by this time next year, and that a stronger yen may cost it 160 billion yen in revenue.

Komatsu blamed “declining sales of mining equipment against the backdrop of slack demand as well as drastically reduced demand in China and other emerging countries” for its full-year result. Its fourth-quarter net income showed a 10 percent decline on the year to 33.6 billion yen, while sales fell 11 percent, according to a presentation to reporters in Tokyo.

A three month-old upswing in commodities has yet to benefit the manufacturers of mining machinery, after customers reduced purchases amid a long retreat in prices from their 2011 peak. Caterpillar Inc., the industry leader with revenue almost three times that of Komatsu, cut its earnings forecasts last week, questioning whether the commodities rally is sustainable.

Stronger Yen

Hitachi Construction Machinery Co., Komatsu’s smaller Japanese rival, said net income for the year through March fell by two-thirds to 8.8 billion yen while sales declined 7 percent, according to a statement. The market for mining equipment won’t bottom until at least fiscal 2017, Chief Financial Officer Tetsuo Katsurayama said at a briefing in Tokyo.
 
Over the year, Komatsu’s sales fell most in China, down 32 percent, while the biggest gain was seen in North America, up 23 percent. The company said that demand for mining equipment will drop by a further 15 percent to 20 percent, while currency will have a big impact on its earnings this year if the yen remains relatively strong.

The yen rose above 108 to the dollar earlier this month, a level not seen since 2014, making Japanese exports less competitive.

Hitachi Construction also warned on the impact of a stronger yen and forecast demand for excavators to fall below 2009 levels, with drops seen everywhere except India. Although it noted a pickup in Chinese demand over February and March, it still expects sales there to fall. The company expects a 9.1 percent decline in net income this year.

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