Minebea Forecasts Profit Drop As Current Results Improve

Minebea Co. Ltd. (Japan), while reporting strong results for the first half of fiscal 2005 (ending March 31, 2005), warned profits for the full year will be down sharply. The unexpectedly revised estimates put the company in the spotlight, particularly because sales and profits were expected to improve across all Minebea operations through the end of the fiscal year. Instead, Minebea said higher costs, the effects of new business ventures, and customer inventory adjustments will result in substantially lower profitability. For the six months ended September 2004, Minebea posted a consolidated net income of ¥1.1 billion, down 60% from the previous year, even though sales were up 9.7%. In the same six month period, bearing related product sales were ¥49.2 billion, up more than 4% over 2003; second quarter bearing sales were up 3% over first quarter. Operating income so far this year is up ¥1.3 billion, or 14.2%. The new consolidated net income projection for the year ending March 2005, however, has net income forecast to drop 56% from initial projections; from ¥9 billion to ¥ 5 billion, even as sales are expected to meet the ¥300 billion forecast, up 12% over the year earlier. The new forecast to the end of the fiscal year also weights bearings more heavily, bumping the year's expected sales from ¥96.8 billion to ¥100.2 billion; up 6% over 2004's ¥94.6 billion Minebea has been plagued by potential profitable years turning into losses. Fiscal years ended March 2003 and 2004 were both initially forecast as profitable but turned into losses, primarily due to write-downs in Minebea's securities portfolio and restructuring issues. Minebea Group consists of Minebea Co. Ltd., and 51 related companies (49 consolidated subsidiaries and two affiliate companies). Minebea primarily manufactures and sells bearings, but also produces machinery components, special machinery components, and electronic devices. The Bearing operations within Minebea are: ¡¤ Minebea Co. Ltd. ¡¤ New Hampshire Ball Bearings, Inc. ¡¤ NMB-Minebea UK Ltd. ¡¤ NMB Singapore Ltd. ¡¤ Pelmec Industries Ltd. ¡¤ NMB Thai Ltd. ¡¤ Pelmec Thai Ltd. ¡¤ NMB Hi-Tech Bearings Ltd. ¡¤ Minebea Electronics & Hi-Tech Components Shanghai Ltd. In the first half, Minebea said bearing sales in Asia were affected by a temporary decline in disk drive spindle motor sales as customers adjust inventory and product mix, and expenses related to expanding production in that product line. In North America, private and military demand for ball bearings made in the U.S. and rod-end bearings for sales to the private aviation industry were, "brisk." In Europe, sales of ball bearings and rod end bearings were firm as a, "moderate economic recovery was seen in this region." For the remainder of the fiscal year, through March 31, 2005, Minebea said, "in mainstay ball bearings, we continue to aggressively make sales expansion efforts as there is strong demand from makers of household electrical appliances, information and telecommunications equipment and automobiles. In addition to achieving economies of mass production as a result of this sales expansion, we also strive to bring costs down further and enhance product quality, thereby improving business performance. In rod-end bearings, sales continue to exceed plan, particularly in the U.S., and we expect that this trend will continue in the future." Higher operating expenses are also affecting profitability; many cost increases are not being passed on to customers, either because the competitive climate does not allow it, or because supply contracts are fixed. In addition to higher costs, Minebea is facing some areas of sluggish sales as customers rebalance their inventories, and a new alliance in the keyboard business caused transfer prices to climb. Goldman Sachs and Merrill-Lynch both reacted quickly to Minebea's revised earnings forecast; both downgraded their ratings on Minebea and the company's stock fell more than 6% on the news.