Hitachi Ltd ((HTHIY)) has held its Q1 earnings call. Read on for the main highlights of the call.
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During Hitachi Ltd’s recent earnings call, the sentiment was a mix of optimism and caution. The company reported strong performance in its Energy and Mobility sectors, achieving record-breaking adjusted EBITDA. However, challenges such as the impact of U.S. tariffs, a decline in the China market, and difficulties in DSS overseas operations were also highlighted, creating a balanced overall sentiment.
Record Adjusted EBITDA and Core Free Cash Flow
Hitachi Ltd achieved a record high in adjusted EBITDA, with core free cash flow increasing significantly year-on-year to approximately JPY 350 billion. This growth was driven by advanced payments for large-scale projects, showcasing the company’s strong financial management and operational efficiency.
Strong Performance in Energy and Mobility Sectors
The Energy and Mobility sectors were standout performers, with revenues and profits increasing in the first quarter. The Energy sector benefited from strong demand in transmission upgrades and renewable energy projects, while the Mobility sector saw growth in its signaling business, contributing to the company’s robust financial results.
Positive Outlook for Fiscal Year 2025
Despite facing short-term risks, Hitachi Ltd remains optimistic about its future. The company expects revenue growth and profit increases, driven by the Energy DSS and Mobility sectors. Revenues are projected to increase by 6% excluding currency effects, reflecting a positive outlook for fiscal year 2025.
Expansion of Lumada Business
The Lumada business experienced significant growth, with revenues for Q1 of FY 2025 increasing by 54% year-on-year. The revenue ratio on a consolidated basis reached 41%, indicating the strategic importance of this segment to Hitachi’s overall business strategy.
Impact of U.S. Tariffs
U.S. tariffs have had a notable impact on Hitachi’s financial performance, resulting in a deterioration of JPY 2.5 billion in adjusted EBITDA for the first quarter. The total deterioration risk for the fiscal year is estimated at JPY 30 billion, highlighting the challenges posed by international trade policies.
Decline in China Market
Hitachi’s business in China faced a decline of 16%, primarily due to reduced demand for elevators and escalators. This decline underscores the challenges in the Chinese market and the need for strategic adjustments to counteract these trends.
Challenges in DSS Overseas Operations
Overseas operations in the DSS segment saw a decline in revenue and profit, attributed to customers’ investment restraint and intensified competition in the storage business. These challenges emphasize the need for Hitachi to enhance its competitive positioning in global markets.
Decreased Core Free Cash Flow Expectation
Hitachi expects a decrease in core free cash flow year-on-year, due to the reactionary decline following the increase in advance payments received in the previous fiscal year. This expectation reflects the company’s cautious approach to managing its cash flow in the current economic environment.
Guidance
Looking ahead, Hitachi Ltd provided guidance indicating robust performance despite challenges such as U.S. tariffs and exchange rate fluctuations. The company anticipates a 6% revenue increase for FY 2025, excluding currency effects, with continued demand in the Energy DSS and Mobility sectors. Although core free cash flow is expected to decrease due to previous fiscal year advance payments, the company maintains its full-year forecast, with stable ROIC and efforts to improve earnings through sales expansion and cost reductions.
In conclusion, Hitachi Ltd’s earnings call highlighted a balanced sentiment with significant achievements and challenges. The company’s strong performance in the Energy and Mobility sectors, coupled with strategic growth in the Lumada business, positions it well for future success. However, challenges such as U.S. tariffs and market declines in China and DSS overseas operations require careful navigation to sustain growth.