Nissan Earnings: Turnaround Continues as Revenue Increase Outpaces Volume and Margin Expands

No-moat-rated Nissan 7201 reported fiscal first-quarter 2022 (ended June 30, 2023) earnings per share of JPY 26.93, better than the JPY 20.52 FactSet consensus by JPY 6.41, and up JPY 14.89 from the JPY 12.04 reported a year ago as the chip shortage improved and turnaround progress continues. While automotive revenue soared 40% to JPY 2.63 trillion, consolidated volume was 20% higher and average revenue per unit jumped 13%. Pricing, mix, and favorable currency were partially offset by the chip shortage. The 5-star-rated Nissan shares currently trade at a 56% discount to our unchanged JPY 1,490 fair value estimate. For long-term investors with patience for a turnaround situation, we think the shares offer compelling value.

Consolidated adjusted operating profit of JPY 128.6 billion with a 4.4% operating margin nearly doubled (up 98%) from JPY 64.9 billion and a 3.0% margin a year ago. Automotive operating profit, including China JV equity income, more than tripled (up 203%) to JPY 36.3 billion from JPY 12.0 billion last year, as turnaround efforts were partially offset by higher costs, including energy, logistics, inflationary pressures, and reduced China volume due to the pandemic and lower internal combustion engine vehicle sales as new Chinese entrants took share with battery electrics.

Management tweaked fiscal 2023 guidance slightly higher. Revenue, operating income, and net income were forecast at JPY 12.6 trillion, JPY 550 billion, and JPY 340 billion, respectively, compared with prior at JPY 12.4 trillion revenue, JPY 520 billion operating profit, and net income of JPY 315 billion. However, global volume guidance was lowered to 3.7 million from 4.0 million retail units, primarily due to unconsolidated China JV volume. Nissan guidance during its turnaround has tended to be high on revenue and volume but low on margin. As a result, we left our model unchanged with revenue at JPY 10.7 trillion and operating profit of JPY 509 million.