Omron Earnings: Better Profitability Offsets Top-Line Headwinds; Fair Value Estimate Cut 1.5%

Wide-moat Omron’s fiscal second-quarter revenue was down 3% year on year and below our expectations, largely offset by better-than-expected operating margin of 6.8%, up 3.6 percentage points year on year and above our expectation of 4.9%. This was largely due to the industrial automation business, or IAB, whose revenue declined 11%, worse than our forecast of a 7.5% decline, on the back of a delayed electric vehicle investment schedule and slack lithium battery production due to the oversupply issue in China. On the other hand, IAB’s operating margin improved 3.1 percentage points to 11.5% from 8.4% in the June quarter and above our expectation of 9.6%, suggesting that the company’s structural reform plan on workforce reduction is working well.