Once considered recession-proof due to its presence in a wide range of products, Hitachi (HIT), Japan’s largest electronics manufacturing concern, has joined the ranks of companies facing massive restructuring needs as the global economy contracts.
Biggest Loss in Japanese History
Before the opening bell on Tuesday morning, Hitachi released its earnings report for the third quarter ending December 31, 2008.
The company posted a loss of $4.1 billion for the period, and projected a loss for the full-year of $7.8 billion, the largest full year loss ever for the company as well as the largest loss ever for a Japanese company.
The loss was 10 times the consensus of analysts following the company.
The company had issued an earnings warning last week, which led to a 17% reduction in the price of the stock, which briefly traded after the warning at the lowest level for the stock in 29 years.
In lowering the earnings forecast for the full fiscal year ending March 31, 2009, Hitachi cited decreased demand for autos, semiconductors and industrial equipment and a loss in the value of held investments.
Hitachi thus becomes the latest victim of the global economic crisis.
Hitachi develops and markets a wide range of products from rice cookers to nuclear reactors. Hitachi employs nearly 400,000 people worldwide and generates over $125 billion in sales.
Long Road to Recovery
In a candid assessment of the prospects for turning company fortunes around, a senior Hitachi executive said it is “hard to see the future these days, and the only thing we can do is cut fixed costs and try to generate cash flow.”
As part of that effort, the company will reduce its workforce by 7,000 and reduce executive compensation. The company also stated its intent to focus more on environmentally friendly, low-cost products.
Size is likely to make it difficult for Hitachi to return to profitability in the near future. Standard and Poor’s noted, conditions at the company are very, very severe, (and) it will take a long time to recover.
S&P further noted that the process of restructuring at a big company is slow and Hitachi may need to take further drastic steps to recover.
Moody’s Investor Services lowered their rating of Hitachi’s long-term debt from A1 to A2, citing similar issues and placing the company on negative watch.
HIT has rallied following the earnings announcement, as investors are apparently taking some comfort that the news was not as bad as it could have been. Hitachi is just another conglomerate slicing and dicing its way through this recession.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
