TDK Corporation (TYO: 6762), a leading electronics company, has reported a strong performance in the second quarter of the fiscal year 2024. The company's net sales increased by 2.8% year-on-year to 1,895.5 billion yen, and operating profit surged by 55.8% to 333.3 billion yen. The growth is primarily attributed to the weak yen, higher shipments in the ICT market, and the impact of prior structural reforms. TDK's net profit also showed a significant boost, rising by 95.1% to 105.7 billion yen, with earnings per share reaching 55.72 yen.
The passive components segment experienced a minor sales dip, but sensor application products and HDD-related products saw substantial growth. The company's outlook remains cautiously optimistic, with revisions to production forecasts and expectations of stable sales in certain segments.
Key Takeaways
- TDK Corporation's net sales rose to 1,895.5 billion yen, a 2.8% year-on-year increase.
- Operating profit significantly increased by 55.8% to 333.3 billion yen.
- Net profit soared by 95.1% to 105.7 billion yen, with earnings per share of 55.72 yen.
- The sensor application products segment grew by 10.2%, while passive components saw a slight decline.
- HDD-related products segment's net sales jumped by 33.6%.
- The interim dividend has been raised from 12 yen to 14 yen, with a similar year-end dividend expected.
Company Outlook
- TDK has revised its full-year net sales forecast to 2 trillion and 120 billion yen.
- Operating income and net income projections have been increased to 220 billion yen and 160 billion yen, respectively.
- The company's strategic initiatives include enhancing free cash flow, proactive business portfolio management, and strengthening human capital and technological capabilities.
Bearish Highlights
- Magnet sales declined, contributing to increased losses due to one-time expenses.
- Energy application products segment experienced a slight sales decline.
- Production forecast for battery EVs was revised downward.
Bullish Highlights
- Sensor application products are expected to continue growing.
- HDD-related products segment benefited from a surge in nearline HDD demand.
- The energy application product segment saw a 17.5% sales increase and an operating profit of 12.7 billion yen.
Misses
- Despite overall growth, the passive components and energy application products segments faced slight sales declines.
Q&A Highlights
- The company discussed its mid-term management plan, including cash flow management, a new reporting structure for business portfolio management, and executive compensation linked to employee engagement.
- Technological advancements include new materials for solid-state batteries and neuromorphic devices, with the latter winning an Innovation Award.
TDK Corporation remains focused on delivering value to its shareholders and customers by managing its portfolio effectively, investing in technology, and maintaining a strong dialogue with investors. The company's commitment to sustainability and digital transformation initiatives also reflects its long-term strategic vision for growth and market adaptability.
InvestingPro Insights
TDK Corporation's strong performance in Q2 FY2024 is reflected in its market position and financial metrics. According to InvestingPro data, TDK boasts a market capitalization of $22.93 billion, underlining its significant presence in the Electronic Equipment, Instruments & Components industry. This aligns with the InvestingPro Tip identifying TDK as a prominent player in its sector.
The company's impressive year-on-year growth in operating profit and net profit is further supported by InvestingPro data showing a robust EBITDA growth of 12.02% over the last twelve months. This growth trajectory is particularly noteworthy given the challenging market conditions and aligns with the company's optimistic outlook for the full year.
TDK's decision to raise its interim dividend from 12 yen to 14 yen is consistent with its track record of shareholder returns. An InvestingPro Tip highlights that TDK has maintained dividend payments for 33 consecutive years, demonstrating a long-standing commitment to shareholder value.
The company's strong financial position is further evidenced by its ability to operate with a moderate level of debt, as noted in another InvestingPro Tip. This financial prudence is crucial for TDK's strategic initiatives, including enhancing free cash flow and proactive business portfolio management.
Despite some bearish highlights in certain segments, TDK's overall performance remains strong. The InvestingPro data shows a remarkable 48.34% price total return over the past year, indicating investor confidence in the company's direction and performance.
For investors seeking a deeper understanding of TDK's financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
Full transcript - TDK Corp ADR (TTDKY (OTC:TTDKY)) Q2 2025:
Operator: It's time, so we would like to start TDK Corporations Performance Briefing for the Second Quarter of Fiscal Year 2024. Thank you for attending this session, despite your busy schedules. First we would like to introduce the participants. President and CEO, Saito Noboru; Senior Executive Vice President and CFO, Yamanishi Tetsuji; Corporate Officer, Sashida Fumio; Corporate Officer, Ikushima Taro; Corporate Officer, Tsutsui Takao. That's all. We will start with a presentation of the financial results for the second quarter and the full year forecast of FY24 ending in March 25th to be followed by QAA. We have about 75 minutes today. All materials used in this briefing are available on the company's website, both in Japanese and English. Now, over to you.
Yamanishi Tetsuji: My name is Yamanishi. Thank you very much for taking time out of your busy schedules today to participate in a financial results briefing for the first half of the fiscal year ending March 2025. I will now present an overview of our consolidated financial results. First, I will explain the main points of the interim financial results. During the first half, the global economy remained unstable with North America remaining firm, but Europe remaining sluggish and China's economy continued to slow down and the situation in the Middle East region becoming increasingly tense. In addition, the yen continued to depreciate, particularly against the US Dollar and the Euro. In the electronics market, which affects our business performance, production trends of ICT related products recovered from the same period of the previous year due to replacement demand and the ramp up of new models and the demand for nearline HDDs for data centers recovered significantly. On the other hand, in the industrial equipment market, overall capital investment demand remained sluggish. In the automotive market, demand for BEVs continued to show signs of slowdown resulting in lower component demand than what was expected at the beginning of the period. In this business environment, sales of medium capacity rechargeable batteries for industrial equipment, power supplies for industrial equipment, passive components and sensors declined during the six month period. Growth in sales of passive components and sensors for the automotive market slowed due to the slowdown of BEV sales. On the other hand, sales of rechargeable batteries, HDD related products and the sensors increased due to recovery in components demand in the ICT market. As a result, net sales for the six month period increased 2.8% year-on-year. Operating profit increased 55.8% year-on-year and reached a record high for the interim period due to the significant depreciation of the yen, increased shipments of products to the ICT market and effects of streamlining and the structural reforms implemented in the previous year. Next I will give an overview of our six month results. FX fluctuations against the US dollar and other currencies increased net sales by approximately 71.4 billion yen and operating profit by approximately 13.6 billion yen, resulting in net sales of 1,895.5 billion yen, up 29.8 billion yen or 2.8% from the same period last year. OP was 1.33.3 billion yen, up 47.8 billion or 55.8% from the previous year. Profit before tax was 137.3 billion yen, up 57.1 billion yen or 71.1% from the previous year. Net profit was 105.7 billion yen, up 95.1% from the previous year. Operating profit and all subsequent profit levels renewed record highs. Earnings per share was 55.72 yen. Exchange rate sensitivity is unchanged from the last quarter, 1 yen change to the dollar has an impact of about 2 billion yen and 1 yen change to the Euro have an impact of about 0.3 billion yen per year. Next, I will explain the situation by segment for the interim period. First, in passive components, sales decreased 0.4% from the previous year to 285 billion yen and operating profit decreased 8.8% to 28.9 billion yen due to continued sluggish demand in the industrial equipment market and a slowdown in sales to the automotive market such as BEVs. Despite increased sales to the ICT market such as smartphones, OP decreased by 8.8% to 28.9 billion yen. Ceramic capacitors and aluminum electrolytic capacitors, which account for a large portion of sales to the automotive and industrial equipment markets, suffered declining sales and profits due to lower demand. Sales and earnings of inductive devices increased due to higher sales to the ICT market. Sales of high frequency components increased and the profitability improved due to the effect of sales expansion for the automotive market in addition to the ICT market. Sales of piezoelectric material components and the circuit protection components decreased due to lower sales to the automotive market. Next, in the sensor application products, sales increased 10.2% from the previous year to 94.9 billion yen, while operating profit declined 36.6% to 3.2 billion yen. Sales of temperature and pressure sensors increased due to higher sales to the automotive industry, but operating profit decreased due to the absence of one-time gains from the sale of assets in the previous year. In magnetic sensors, both sales and profit of TMR sensors and hall sensors increased due to expanded sales of smartphones. As for MEMS sensors, sales of microphones for the ICT market increased and profitability improved, but sales of motion sensors for automotive and industry equipment declined resulting in lower overall sales and profits for MEMS sensor. Next is magnetic application products. Net sales increased 33.6% year-on-year to 110.9 billion yen and operating profit was positive including a one-time gain of approximately 4.3 billion yen from HDD heads and suspension. The HDD head and suspension business was profitable even excluding one-time gains due to a 1.6 fold increase in demand for NL HDDs for data centers compared to the same period last year. Head sales volume was up 1.6 times from the same period last year and the sales for nearline HDD were up about three times. Although head sales volume was slightly below the breakeven point volume, after restructuring it returned to profitability excluding one-time gains. Suspensions exceeded the breakeven point volume and are now firmly in the positive territory. Magnet sales and profits declined due to lower sales to automotive market. Next is Energy application products. Sales declined 1.2% to 572 billion yen and operating profit increased 37.6% to 123.4 billion yen. Sales of rechargeable batteries increased only slightly despite an increase in sales volume from the launch of new smartphone models due to the impact of lower selling prices resulting from falling material prices and the completion of a JV transfer for medium capacity batteries which reduced consolidated sales of the company. Operating profit increased slightly as -- significantly due in part to volume growth, ongoing rationalization effects and foreign exchange gains. Sales and profits of power supplies for industrial equipment decreased due to a lack of recovery in demand for industry equipment. Sales and profits of power supplies for EVs also decreased due to slowdown in sales of automotives including those of BEVs. Next is variance analysis of the 47.8 billion yen increase in OP for the first six months. Although there was a decrease in profit due to lower sales volume in passive components and sensors, there was a 27 billion yen increase in profit due to the effect of higher sales volume in rechargeable batteries and HDD heads and suspensions. Cost reductions of 14.3 billion yen through rationalization absorbed the 12.7 billion yen decrease in profit due to changes in selling prices. Structural reforms implemented in the previous year had a positive effect of 4.4 billion yen while one-time expenses of 3 billion yen this fiscal year vis-a-vis 1.4 billion yen in the previous year resulting in an increase in expenses of 1.6 billion yen. SG&A expenses decreased by 2.8 billion yen including 4.3 billion yen one-time gain recorded in HDD head and suspension. The impact of yen depreciation was an increase of a profit of 13.6 billion yen. As a result, overall profit increased by 47.8 billion yen. Next I will give an overview of the second quarter results for the current fiscal year. Foreign exchange fluctuations against the US dollar and other currencies increased net sales by approximately 17.6 billion yen and operating profit by approximately 2.5 billion yen, resulting in net sales of 570.7 billion, up 14.4 billion or 2.6% year-on-year; OP of 75.4 billion, up 16.2 billion or 27.3% year-on-year; profit before tax of 8.5 billion, up 14.4% or 67.6 billion year-on-year; and net profit attributable to owners of parent of 46.1 billion, up 16.8% year-on-year. I will now explain the factors behind the changes in sales and operating profit by segment from the first quarter to the second quarter. First, in the passive components segment, sales decreased 1.1 billion yen or 0.8% from Q1, while operating profit increased 1.1 billion yen or 7.7%. Sales and profit of ceramic condensers declined mainly due to lower demand for BEVs. Sales of aluminum electrolytic capacitors were flat and the profit increased due to higher sales to the automotive industry despite lower sales to the industrial equipment market. Sales and profit of inductors increased due to higher sales to the ICT market. Sales and profit of high frequency components also increased due to higher sales to the ICT market. Sales and profits of piezoelectric material products and circuit protection components remained almost flat. Sales of sensor application products increased 15.2% to 6.7 billion yen and operating profit turned to a positive profit of 3.8 billion yen in the second quarter from a loss in the first quarter. Sales and profits of temperature and pressure sensors increased due to higher sales to the automotive industry. Sales and profit of the magnetic sensors increased due to a significant increase in sales for smartphones despite a decrease in sales for automotives. As for MEMS sensors, sales of microphones for the ICT market increased and sales of motion sensor for the drone market also increased resulting in higher sales and smaller losses. Next is the magnetic application products segment. Sales increased slightly by 900 million yen and operating profit increased by 300 million yen. The operating profit includes one-time expenses of 2.1 billion yen in the second quarter and a one-time income of 2.3 billion yen in Q1 and 2 billion yen in the Q2. Excluding one-off income and expenses, the OP increased by 2.6 billion yen in real terms. HDD head sales increased due to a recovery in total demand for nearline HDDs. HDD head sales volume up by about 4%, nearline HD head sales volume up by approximately 9% and suspension sales volume increased by about 18%. Overall, head sales increased and excluding the one-time income of 2.3 billion yen in Q1 and 2 billion yen in Q2, the segment remained profitable on a substantial basis. Magnet sales decreased and with the one-time expenses of 2.1 billion yen, the losses increased. Next, the energy application product segments. Sales were 46.1 billion yen, up 17.5%. Operating profit 12.7 billion yen including one-time expenses of 400 million yen. In the second quarter, the OP grew by 22.9%. In the area of rechargeable batteries, sales of small capacity batteries for ICT applications increased significantly due to the strong sales of new products such as smartphones and the sales of medium capacity batteries also increased due to spot orders of a residential energy storage system achieving increase in sales and profit. Sales and profit from power supplies for industrial equipment decreased and EV power supply sales also decreased and loss increased with the one-time expenses of 400 million yen in the second quarter. Next, I will go over the status of cash flow. As for the six months results, operating cash flow was 205.9 billion yen. Investment cash flow including CapEx was 100 billion yen and free cash flow was 105.9 billion yen, virtually the same level as 106 billion yen free cash flow in the previous term. We have been making efforts to maintain appropriate inventory levels since last year and with a decrease in CapEx and increase in profits, we significantly exceeded our initial forecast for free cash flow. We have already greatly exceeded the full year free cash flow target of 15 billion yen set at the beginning of the term. Through further revenue expansion and improved capital efficiency, we continue to aim to increase free cash flow. That concludes my explanation. Thank you very much.
Saito Noboru: I am Saito. Thank you for joining the performance briefing. I will talk about the projections of the fiscal year ending March 2025. First of all, I would like to explain the revision to our assumptions of the projections, i.e. forecast for the production volume of major devices related to the company. For the automotive market, total production volume of the vehicles have been revised down from the April forecast. The main factor is a downward revision of battery EVs among electric vehicle. On the other hand, that number of plug-in hybrid, PHEV, vehicle is revised upward. Next is smartphone production, which holds a meaningful space in ICT market. We have revised the forecast from 1.144 billion units to 1.175 billion units. With regards to the HDD market, the market continues to recover so we have revised the forecast for nearline HDD production for data centers upward from April forecast to 59 million units. Next is the image of the changes in net sales by segment in the third quarter. For the third quarter we will not change the exchange rate assumption for the projections from the initial assumptions of 140 yen to a dollar, but we will explain the changes in net sales excluding exchange rate fluctuations for easier comparison. First, in the passive component segment, sales to the industrial equipment market are expected to remain weak, but the sales to the automotive market will increase, so overall sales will stay flat. In the sensor application products segment, sales of temperature and pressure sensors for automotive applications will increase. As for sales of MEMS sensors, microphones will grow, but the sales of magnetic sensors for smartphones will decrease from the seasonal peak demand, so overall sales are expected to be in the range of decrease by 3% to flat. Next, the magnetic application product segment, we forecast HDD production to increase by around 2%, nearline HDD production to increase by around 4%. Sales of suspension will increase, but the head sales will decrease due to off season for new model launches and we expect a decrease of between 12% to 9% overall. Finally, in the energy application products segment, due to the sluggish industrial equipment market, sales of medium capacity batteries and power supplies for industry equipment will decline, but sales of small capacity batteries will be flat or increase slightly due to seasonal factors in the smartphone market and overall sales are expected to increase by 1% to 2%. Next, I would like to go over our consolidated full year projections for fiscal March 2025. As I mentioned, in the electronics market at the half year point, although production in the industrial equipment and automotive market is sluggish, production of smartphones and HDDs in the ICT market has been strong and higher year-on-year and the results for the first half exceeded the projections announced on April 26th of this year. In the ICT market, with the launches of new models such as smartphones, sales of rechargeable batteries and sensors increased. In addition, demand for data centers which was weak in the previous fiscal year recovered significantly and the sales of HDD heads were strong. In light of these situations, we reviewed the full year earnings projections and revised up our consolidated earnings forecast for the fiscal March 2025 from the forecast announced on April 26 this year to net sales of 2 trillion and 120 billion yen, operating income to 220 billion yen and net income to 160 billion yen. The exchange rate remains unchanged from the initial assumption of 140 yen. Anticipating changes in future demand trends, we implement measures to improve asset efficiency and we plan to record a total of about 10 billion yen of one-off expenses for the full year including structural reform expenses. This is incorporated in the projections. For dividend, we will increase the interim dividend from 12 yen to 14 yen and we also plan to pay a year-end dividend of 14 yen. Lastly, let me update the progress of the three points of the new mid-term management plan that I explained at the Investors Day in May. The first is to strengthen our ability to generate free cash flow. At the beginning of the fiscal year, we expected full year free cash flow to be 15 billion yen and, as I said, the interim results were better than the plan and we now expect full year free cash flow to increase to 120 billion yen. We will continue to work to strengthen our cash flow management through measures such as optimizing inventory levels and CapEx in line with the market demand. The second is about the progress on proactive business portfolio management. In the past, at the key meetings such as Management Committee meeting, the top managements of the four business companies reported and discussed initiatives to improve capital efficiency. From this fiscal year, we have changed to a reporting system led by leaders of each cash flow business unit, CBU. As a result, we are now able to have more specific discussions on improvement measures for each CBU and we have started to look into the revitalization plans for the CBUs under review and making a progress in determining the direction. This change in structure is also utilized as a venue for succession planning for the future business group general managers and the business company CEOs for the development of management talent. The third point is the evolution of the ferrite tree and strengthening pre-financial capital. To strengthen human capital, we started to link executive compensation to engagement scores from this midterm to improve engagement. We conducted second survey in September and the participation rate improved from 80% to 89%. We are currently analyzing the detailed results and we will incorporate them into specific actions to enhance employee engagement. In strengthening our technological capabilities to contribute to mid-to-long term social transformation, we have made progress in developing new technologies including all solid state battery materials and neuromorphic devices as well as the development of the visible light full color laser control devices. Our neuromorphic device won the Innovation Award at the CEATEC last month. In addition, at the end of July, we established SensEI, a new company which will provide new solutions using edge AI and sensor fusion to contribute to DX in society. In addition to this, we will continue to strengthen our sustainability activities and DX initiatives. As progress of our sustainability activities, we received SBT Certification from the International Initiative SBTI in June this year and in July we received a Gold Rating for the first time in a survey by EcoVadis, an international sustainability assessment organization. And on October 1st we were certified as a DX certified business by METI. We will continue to promote DX across the company in areas such as sales, marketing, manufacturing and sustainability activities to create new value. While continuing to strengthen our financial and pre-financial activities, we will strive to achieve our long term vision TDK Transformation. We have increased our dialogue with investors since the start of this fiscal year and we will continue to enhance our constructive dialogue and our collaborative activities with you in order to improve our corporate value. And already it has been increased to a double of the past. We ask for your continued support. Thank you. This concludes my presentation.
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