Hitachi Construction Cuts Annual Profit Target on Yen Strength

  • Net income seen totaling 5 billion yen in year to March
  • Company forecast based on an assumed yen rate of 100

Hitachi Construction Machinery Co., Japan’s second-biggest producer of building equipment, cut its full-year profit forecast by 38 percent following a first-quarter loss on the yen’s appreciation.

Net income will probably total 5 billion yen ($47 million) for the financial year to March 2017, missing a forecast of 8 billion yen made in April, the Tokyo-based company said Wednesday in a statement. Hitachi Construction Machinery reported a net loss of 1.6 billion yen for the three months ended June 30, compared with a profit of 2.8 billion yen a year earlier.

Revenue at the company, a unit of Japanese industrial conglomerate Hitachi Ltd., dropped in all regions except Europe, India and Oceania. Sales in China declined 17 percent in the quarter, Latin America fell by more than half and Asia outside Japan, India and China saw a 31 percent drop in quarterly revenue.

The increased value of the yen makes Japanese exports less competitive overseas and further eroded earnings, serving a blow to Hitachi Construction since the company derives about 75 percent of its sales outside Japan.

Hitachi Construction Machinery’s full-year forecast is based on a foreign exchange rate assumption of 100 yen to the dollar, revised from 110 yen to the dollar built into the previous annual forecast.

New Threats

The yen traded at 105.8 to the dollar as of 3:28 p.m. in Tokyo. President Yuichi Tsujimoto warned last month that a stronger yen and demand in Europe will be new threats to his company, which is already contending with a prolonged slump in China and a rout in commodity prices.

Caterpillar Inc. this week lowered its forecast for 2016 sales and earnings for the second time in three months as demand for mining and energy equipment fails to rebound after a slow start to the year. The U.S. company said Tuesday that annual sales will be $40 billion to $40.5 billion, compared with its forecast in April of $40 billion to $42 billion. Earnings excluding restructuring costs will be about $3.55 a share, down from previous projection of $3.70.

Komatsu, the world’s second-biggest maker of construction and mining equipment, will report quarterly results on Thursday.

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