Earnings at Japanese companies exceeded analysts' forecasts
Japanese companies reported earnings that exceeded analysts’ forecasts by the widest margin in five years, despite a sharp rise in oil prices. In the three months ending in June, 71% of local companies reported earnings that exceeded analysts’ expectations, according to Bloomberg data.
The combined net profit of Japan’s 500 largest companies exceeded ¥21 trillion, or $132 billion. This is higher than the previous record—approximately ¥18 trillion—set a year earlier. Companies in the Topix index are projected to post a record profit margin of 9.3%—the highest since comparable statistics began more than three decades ago.
Both exporters and companies focused on domestic demand reported rising profitability. Hiroki Takei, a strategist at Resona Holdings, noted that results exceeded expectations not only among exporters and semiconductor-related manufacturers but also among companies serving the domestic market. In his view, investor interest in a broader range of sectors may persist.
Among companies involved in microchip manufacturing, Advantest and Tokyo Electron posted better-than-expected results. Nitori Holdings, an furniture retailer; LY, an internet company; and Otsuka, a software company, also exceeded forecasts. At the same time, the decline in profits mainly affected airlines and utility companies, which were most impacted by the conflict in the Middle East.
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Yasuhiko Hirakawa, head of equity investments at Rakuten Investment Management, attributed the strong results in part to rising prices, which companies were able to pass on to consumers. Additional factors included a weaker yen and one-time refunds related to tariffs imposed during Donald Trump’s presidency.
The strong corporate results were released against the backdrop of a preliminary estimate indicating that the Japanese economy unexpectedly slowed this quarter due to weaker domestic consumption and capital expenditures. At the same time, analysts raised their earnings-per-share estimates for Topix companies for the current year by 6.9% from the end of June. Over the same period, the estimate for the S&P 500 index rose by 4.9%.
From July through mid-August, shares of 77% of the companies in the Topix rose, while the index itself gained 4.7%. In the previous earnings season, shares rose for only 56% of the companies in the index, although the Topix rose 10.5% at that time.
