About Nikon's Financials

There's a lot of discussion about Nikon's financials still going on, and it's provoking quite a few comments that are incorrect, as well as some bad speculation about the future of Nikon. Call it Fake Views. 

So let's do a bit of a drill down for a moment. If you don't understand finance-speak, just skip down to the boldface word summary, below. 

In terms of fundamental numbers, Nikon has been and continues to be relatively healthy as a company. Some of their regulatory data isn't yet available to me for the most recent quarter, so I'll go back to the previous quarter for some numbers. Because the big news was an "extraordinary loss," many of these numbers probably won't change. 

Nikon's P/E ratio has tended to be in the mid-20's to low-30's recently. Obviously, with a special loss, it's not a meaningful number for the current quarter, but nothing in the underlying numbers seems to suggest that it will be different for ongoing operations. I'd characterize Nikon's P/E as slightly high to the market average, but not meaningfully so. The market in general is somewhat high, too. 

Nikon's Price/Book Value, which is the stock price divided by the breakup value of the underlying assets has been in the 1.1 to 1.2 range, meaning that there's not a lot of speculation in the value of the company: shareholders are paying close to fair value for the underlying assets. Now this may change a bit when the assets that were just written down are taken into account, but probably not much given how high the book value is to the extraordinary loss.

Nikon's been paying a dividend yield on its stock, which tends to vary by quarter, but recently has been in the mid 1% range. Return on equity has been in the mid-single digits, Return on assets in the low-single digits. Those numbers aren't exactly where I'd want to see them for a completely healthy company: they're all indicative of little or no growth. 

If you're wondering about why Nikon is so tied to cost cutting, it's all about that dividend. Nikon has tried to keep free cash flow high enough to sustain a decent (for Japan) dividend. Why? Well, look at their largest shareholder list: they're almost all banks and financial institutions. Banks that are charging 1% interest on bonds to companies like Nikon, but getting 1.5% in dividends ;~). 

Total corporate debt is only about half of cash and equivalents. That's a very reasonable level, and most of Nikon's debt is also at absurdly low interest rates (typical in Japan). 

In other words, we have a company whose financial statements and underlying numbers all seem decent, except for one thing.

Summary: From 2012 to present, Nikon's sales and income numbers have diminished considerably, with Imaging sales dropping by almost half. Nikon is a negative growth company in terms of sales, and because they've managed their costs so close to the vest, they're an equally negative growth company in terms of income/profit. 

The problem for Nikon is simple: they need growth. The current reaction of Nikon camera customers is this: where are the new cameras we want? So put those two things together and you have "negative growth will continue." 

That's why the lack of Nikon 1, the poor decision to launch KeyMission, the cancellation of the DL cameras, and the lame D3400 and D5600 updates is causing so much fuss in the Nikon community. Given that the D7200, D610, D750, and D810 are all due for updates this year, the worry is that the trend of not producing better cameras that the users want could continue if Nikon botches (or withholds) those iterations. 

Still, the D7200, D610, D750, and D810 updates are not Nikon's biggest problem. The problem is that they shot for the moon with the Nikon 1, shot for a moon orbit with the KeyMission, shot for the moon again with DL but had a launch failure, got the D3400 and D5600 off the launch pad but not near the moon, and so on. All the dollars that the products below the D7200 would have brought in have collapsed into the nothingness of space. Negative growth. 

Even perfect D7300, D650, D760, and D850 product launches would only move the growth bar slightly in the correct direction. Plus Nikon has built a wait-and-see attitude into their customers given the D610, D750, and D800 launch issues. So there's no "quick fix" to turn around Nikon sales numbers. 

But will Nikon fail or be acquired or declare bankruptcy? No, no, and no. At present the best guess is that they're just going to get smaller. Have fewer products. Sell mostly high-end gear. 

Until such time as Nikon launches something below the D7200 that has traction, that's going to continue to be the case. 

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