NSK: Q1 better, but still prefer pure auto parts

by SR on July 31, 2012

NSK quarterly sales and operating profit (billion yen)

  • Conclusion: NSK’s April-June 2012 results (announced 30 July) show why you should be in autos or auto parts rather than machinery. There’s a strong argument for assuming that (absent a continent-wide collapse in Europe) machinery demand can’t really get much worse. On the other hand, quarterly results of machinery stocks remain weak and although NSK is an auto parts supplier as well as an industrial bearings manufacturer, it hasn’t been exempt from this trend. The chart above shows that the company turned in slightly lower Q1 sales (190.1 billion yen) and slightly higher operating profit (12.1 billion yen) than in the previous January-March 2012 quarter. The quarterly operating profit margin improved as shown in the graphic below to 6.4%, a far cry from the 8-9% range that was common before the global financial crisis.

    Moreover, although NSK’s quarterly sales in Q1 are back to nearly 95% of the previous record level, operating profit still languishes at 65% of peak (see second chart below). Management noted in its quarterly filing an increased sense of slowdown in industrial machinery demand. By contrast, auto demand was reported to be strong pretty much every where except Europe. Unfortunately, autos account for only 66% of NSK’s revenues, which dilutes the exposure. To put that in context, close to 100% of Denso’s sales come from auto parts and its operating profit was at 75% of the previous peak in Q4 and will likely be close to that in the April-June quarter. That’s a whole ten percentage points higher than NSK. The message is clear: auto parts companies are likely to continue to post better results during this round of earnings results than the machinery stocks.

NSK operating profit margin (%)

NSK sales and operating profit compared to peak levels (%)

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