Hitachi Ltd’s Mixed Earnings Call: Growth Amid Challenges

Hitachi Ltd ((HTHIY)) has held its Q2 earnings call. Read on for the main highlights of the call.Meet Your ETF AI Analyst Discover how TipRanks' ETF AI Analyst can help you make smarter investment decisions Explore ETFs TipRanks' users love and see what insights the ETF AI Analyst reveals about the ones you follow. Hitachi Ltd’s recent earnings call painted a picture of both optimism and caution. The company reported robust revenue growth and strategic advancements, particularly in the AI and energy sectors. However, challenges such as equity losses in affiliates and competitive pressures in certain business areas were also highlighted, indicating a mixed outlook for the future. Revenue and Profit Growth Hitachi achieved significant financial milestones in Q2 FY 2024, with an 11% year-on-year increase in revenue and a 23% rise in adjusted EBITA. This growth was largely driven by strong performances in the Digital Systems and Services (DSS) and Green Energy and Mobility (GEM) sectors, showcasing the company’s strategic focus on these high-potential areas. Upward Revision in FY 2024 Forecast In light of strong demand in the GEM sector, Hitachi has revised its FY 2024 revenue forecast upwards by JPY 150 billion and adjusted EBITA by JPY 19.5 billion. This upward revision reflects the company’s confidence in its growth trajectory and strategic initiatives. Strong Order Growth in GEM The GEM sector witnessed a remarkable 42% year-on-year increase in orders, with the railway business unit and Hitachi Energy making significant contributions. This surge in orders underscores the sector’s critical role in Hitachi’s growth strategy. Strategic Partnerships and AI Investments Hitachi is actively expanding its strategic partnerships, including a notable collaboration with Singtel. The company is also investing JPY 300 billion in generative AI, focusing on infrastructure development and service engineering, which are expected to drive future growth. Increased Interim Dividend Reflecting its strong financial performance, Hitachi announced a 10% increase in its interim dividend, marking a 31% year-on-year rise from the previous year’s interim dividend. This move is likely to be well-received by shareholders, signaling the company’s commitment to returning value to its investors. Equity Loss in Hitachi Astemo Despite the positive financial results, Hitachi reported a decline in consolidated EBITA by JPY 22.1 billion year-on-year due to equity losses in affiliates, particularly Hitachi Astemo. This highlights ongoing challenges in some areas of the business. Challenges in Storage Business The DSS segment’s storage business faced difficulties due to intensified competition and project shifts, impacting profitability. This segment will require strategic adjustments to regain momentum. Impact of Foreign Exchange and Project Delays Hitachi Energy’s Q2 performance was affected by foreign exchange fluctuations and project delays, leading to revenue and profitability variations. These factors present ongoing challenges that the company needs to navigate carefully. Forward-Looking Guidance Looking ahead, Hitachi’s guidance for FY 2024 remains optimistic. The company anticipates a 7% year-on-year increase in revenues and a 23% rise in adjusted EBITA, with the adjusted EBITA margin expected to improve by 1.5 percentage points to 11.5%. Core free cash flow is projected to reach JPY 1.5 trillion, surpassing the medium-term target by JPY 300 billion. In summary, Hitachi Ltd’s earnings call revealed a mixed sentiment with strong growth in key sectors and strategic investments, balanced by challenges in certain areas. The company’s forward-looking guidance remains positive, indicating confidence in its strategic direction and growth potential.