NSK Releases Fiscal 2006 Results

NSK Releases Fiscal 2006 Results Sales for the year were ¥717.2 billion (USD $5.89 billion), up 14% from 2005's ¥628.5 billion ($5.17 billion). Net income for 2006 hit ¥34.9 billion ($286.5 million), rising more than 36% from 2005's ¥25.6 billion ($210.4 million). This marks NSK's third consecutive year of record sales and record profits. The results also defied the mixed experiences of other bearing manufacturers, by notching sales gains across all market segments, including the hard-hit and difficult automotive sector. NSK is a diversified automotive and industrial product manufacturer, operating in four segments: Industrial Bearings 2006 sales were ¥216.3 billion, up 11% from 2005's ¥195.6 billion. Even more telling, the sector's operating income was 13.7% of sales, amounting to ¥29.6 billion, 34% higher than 2005's ¥22.1 billion or 11.3% of sales. NSK attributed the sales improvement to higher demand in all its markets and sectors such as steel mills, IT equipment, electrical machinery, construction machinery, and machine tools. A few weak sectors, such as aftermarket sales in Brazil, failed to have a significant impact. The strong profitability results largely hinged on improved capacity utilization, underscoring the point that for most manufacturing companies, profitability is leveraged by volume. Going forward, the segment is considered NSK's "income growth driver," and will continue to see aggressive investments, in particular, adding production capacity for roller bearings. Sales infrastructure will also be expanded. Automotive Products includes wheel hub unit bearings, standard ball bearings, needle roller bearings. In addition, the division produces electric power steering systems, steering columns, and automatic transmission components. Sales for the sector were up 13%, reaching ¥398 billion from 2005's ¥353 billion. Operating income for 2006 was ¥22.7 billion, or 5.7% of sales, up 31% over 2005's ¥17.4 billion, or 5% of sales. NSK said sales of all products were up globally, particularly with electric power steering and transmission components in Japan. The Americas, Thailand and China accounted for steering column sales, and Europe was strong for electric power steering. Once again, the company credited enhanced capacity utilization for the improvement in operating income, in addition to reducing raw material and component costs. NSK said Automotive is the "stable source of income" and that it will intensify efforts to win more contracts from Japanese and non-Japanese automotive OEMs, while it strengthens profits by reducing costs. Cost reduction efforts will include better pre-processing operations, adding global purchasing efforts, increasing the proportion of products made in-house at overseas plants, and developing new facilities and processing technology. Precision Machinery & Parts produces semiconductor and liquid crystal production equipment, among other related product lines. Strong demand for LCD production and similar equipment led the segment to ¥77.7 billion in sales, up 18% over 2005. Operating income rose 107%, again credited to improved capacity utilization and reduction in purchased component costs. Other is a catch-all which includes Amatsuji Steel Ball, acquired in March 2006. Sales in this segment were ¥45.1 billion against ¥23.5 billion a year ago. Similarly, operating income was ¥2.4 billion, or 5.3% of sales, from 2005's ¥1.3 billion, or 5.5% of sales. Amatsuji Steel Ball had sales of ¥15 billion for the year. In its forecasts for the remainder of fiscal 2007 -- through March 2008 -- NSK offers specific milestones: Inventory level should stay in the current range of 6.9 to 7 turns; capex will drop back to its historically consistent level but still higher than depreciation; the debt load is forecast to drop again, to 0.69% of equity from 0.89% of equity. Industrial bearings should see demand and profits continue to climb worldwide, tempered by uncertainty about a potential slowdown in U.S. industrial production. Automotive products are expected to see higher demand from the Americas and Europe, along with sharply higher demand from emerging countries such as China and India. Precision machinery and parts should continue to see a recovery as semiconductor and liquid crystal equipment manufacturers continue their washout and adjustment. The straggler again in 2007 will be sales to the already-overbuilt LCD sector in Asia, as customer profits disappear and their plants close amid overcapacity. Next 10 is NSK's 10-year operating program, heading into its 100th anniversary. Next 10 starts with the mid-term plan for FY2006-FY2008 and maintaining 10% or greater operating income margin, continuing with sales growth and operating efficiencies. The mid-term vision is to, "become No.1 in total quality," by reinforcing manufacturing capability, product development capabilities, overseas profitability, and global management capability.