Komatsu’s First-Quarter Profit Falls 52% as Demand Languishes

  • Net income declines to 15.6 billion yen; sales slide 13%
  • Equipment sales fall 16% in Latin America, 47% in Middle East

Komatsu Ltd., the Japanese maker of construction and mining machinery that last week offered to buy Joy Global Inc. for about $2.89 billion, said first-quarter profit fell 52 percent as demand languished in strategic markets such as the Middle East and Indonesia and the stronger yen crimped overseas revenue.

Net income fell to 15.6 billion yen ($149 million) for the three months ended June 30 from 32.5 billion yen a year earlier, the Tokyo-based company said Thursday in a statement. Sales fell 13 percent to 389.3 billion yen. The company reiterated that profit will likely fall by a third to 92 billion yen for the financial year through March 2017.

Komatsu and its peers are suffering from a prolonged slump in China where construction spending has weakened. Additionally, the company’s global mining customers have scaled back activity amid a collapse in metals prices, while a stronger yen is providing another setback for Komatsu and domestic rival Hitachi Construction Machinery Co. by making their products less competitive abroad.

Sales to outside customers at Komatsu’s construction, mining and utility equipment business fell 12 percent in the quarter, with a 16 percent decline in Latin America, a 47 percent drop in the Middle East and a 24 percent slide in Asia excluding Japan and China. Equipment sales were flat in China, while revenue from Japan dipped almost 12 percent.

While Komatsu last week signaled optimism for the mining outlook by announcing the acquisition of Joy Global, the largest independent maker of underground mining equipment, global equipment producers are expected to continue to face tough times at least in the short term.

Yen Strength

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. Hitachi Construction, Japan’s No. 2 producer, cut its full-year profit forecast on Wednesday by 38 percent following a first-quarter loss on the yen’s appreciation.

The yen, which soared above 100 yen last month when the U.K. voted to quit the European Union, last traded at 104.6 yen to the dollar as of 3:21 p.m. in Tokyo.

Komatsu’s chief financial officer, Mikio Fujitsuka, said in a June 27 interview that the yen’s response in the wake of the Brexit vote was an overreaction and that the currency isn’t likely to head back to previous highs above 80 yen.

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