Hitachi Construction Slumps as Demand Slowdown Spreads Globally

  • Warns of substantial drop in Chinese demand as works stall
  • Company cuts global market outlook for excavator sales

Hitachi Construction Machinery Co., Asia’s second-biggest maker of building equipment, cut its sales and profit targets for the year as a slowdown in demand in China extends to the developed world. Its shares fell the most in a month.

The company trails only Komatsu Ltd. in Japan’s construction equipment market and is among the world’s top suppliers of the large excavators and dump trucks used by miners. Both Komatsu and Hitachi Construction have been quick to warn on the impact of China’s economic woes, and in its first-half earnings report on Tuesday Hitachi signaled the slump in demand is spreading.

“Sales are expected to fall short of the company’s previous forecast due to demand slowdown in developed countries and further slowdown in emerging markets,” Chief Financial Officer Tetsuo Katsurayama told reporters in Tokyo. For China, he said there aren’t any signs of a pickup in consumption and the company’s view is that “we won’t see a recovery in the second half.”

Hitachi Construction cut its operating profit forecast for the year to March by 44 percent to 30 billion yen ($249 million), according to a statement to the Tokyo Stock Exchange. That’s less than half the operating profit reaped in the year ended March 2015. It also cut its sales forecast by 3.7 percent to 780 billion yen.

Its shares fell as much as 6.9 percent to 1,775 yen on Wednesday, and at 9:51 a.m. in Tokyo traded at 1,792 yen.

Substantial Drop

Regarding the out-sized revision to its operating profit, Katsurayama said restructuring expenses incurred to help contend with the slowdown had compounded the impact of the declines in sales.

China’s demand for construction equipment continued to drop substantially as existing works stalled and new orders for projects were delayed, according to the Tokyo-based company. In addition, it cut its global market outlook for excavators because of a slump in demand that is now affecting all major markets bar India.

Hitachi Construction said it expects global demand for excavators, excluding those built by Chinese suppliers, to fall 19 percent to 148,000 units in the current year. That’s less than the 151,000 units bought in 2009, the market’s recent bottom during the global financial crisis. Hitachi’s previous forecast was for an 11 percent fall. In China, demand is expected to drop 49 percent, steeper than the previous forecast for a 39 percent decline.

“The environment remains harsh with the firm cutting its targets across the board in key regions including Japan, North America, China and Southeast Asia,” SMBC Nikko Securities Inc. analysts said in a note Wednesday.

In the first half, which ended in September, Hitachi Construction said operating profit fell 45 percent to 16 billion yen. Net income was down 48 percent, while revenue slid 6 percent. Komatsu reports its first-half results later Wednesday.

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