For investors in Japanese industrial powerhouse Sanyo (NASDAQ:SANYY), Friday is a big day. That's when the company releases its earnings numbers for the first half of fiscal 2006.
This will be the company's first earnings report since it announced a widescale planned restructuring back in September -- the same restructuring that the company's CEO alluded to in his eminently quotable statement from the company's July earnings report: "We will no longer conduct operations that don't produce profits."
Speaking of restructuring and money, Sanyo's latest plan includes spending the next three years selling off money-losing operations and expensive real estate, including a Tokyo office building, four factories, and more than five dozen sales offices around Japan. The company intends to lay off 14,000 workers, with two thirds of those getting pink slips by the end of this fiscal year, as it exits the markets for VCR and standard DVD players and recorders to refocus its efforts instead on high-definition DVD technology.
The aim of all these cuts is to save Sanyo $1.5 billion in expenses over the next three years. But don't expect to see much of these savings show up tomorrow. We're only about a month and a half into a 36-month process, remember. In fact, we're more likely to see on Friday that losses have ballooned as the company incurs severance expenses for its dismissed employees, records any losses on its real estate sales, and so on.
As for precisely how big tomorrow's reported loss will be, no one seems to be saying -- not analysts, not the company itself. Analysts do seem to agree that the full fiscal year, ending next March, will wrap up with a loss of about $2.71 per American Depositary Receipt -- more than three times worse than last year's $0.84 loss. But since no one else wants to comment on tomorrow, I'll take a flyer: Expect to see the bulk of that loss accrue in the second half of fiscal 2006, as the company's reform efforts really begin to bite, with probably less than $1 in losses being reported tomorrow.
Further down the road, as Sanyo begins to see some benefits from all of these restructuring-related costs, analysts expect the company to begin turning its ship around in fiscal 2007, when they anticipate seeing $0.37 in profit per ADR. I can't see out that far. But I do agree that the more Sanyo moves away from producing high-tech commodities (VCRs and DVD players) and toward more cutting-edge, high-margin products such as watchdog robots and battery packs for hybrid cars, the better the company's prospects become.
Is anything in Sanyo's business going right? Apparently so. Read all about its role in the battery business:
Fool contributor Rich Smith owns no shares of any company mentioned in this article.
