Japanese Companies Expect to Miss Forecasts on Oil-Price Gains

By Hiroshi Suzuki

Aug. 9 (Bloomberg) -- Japanese companies expect rising energy and materials costs will erode profit and prevent them meeting earnings forecasts this year, Shinko Securities Co. said.

Pretax profit may fall an average 9.3 percent in the year ending March 31, Shinko said yesterday, reporting results of its survey of 1,199 Japanese companies. That compares with corporate estimates at the end of June showing an average 5.7 percent slide.

Japan's economy probably shrank an annualized 2.3 percent last quarter, economists said, bringing the country to the brink of its first recession in six years as exports fell and consumers spent less. Toyota Motor Corp. this week reported its biggest drop in earnings in five years as U.S. sales slumped.

``No quick recovery is likely for either domestic or overseas demand,'' Hiromichi Shirakawa, an economist at Credit Suisse Group in Tokyo, said ahead of the Shinko report. ``We can expect the environment for corporate earnings to worsen and plant and equipment spending by companies to stay stagnant.''

Companies plan to increase capital investment by 4.1 percent in the year ending March, according to a survey released this week by the Tokyo-based Development Bank of Japan. That compares with last fiscal year's 7.7 percent.

Manufacturers including Toyota, Mitsui Engineering & Shipbuilding Co. and Nippon Sheet Glass Co. have already forecast full-year earnings declines, citing costs for energy and raw materials. Oil's rise to record highs in the latest quarter ate away at profitability and crude remains 65 percent more expensive than a year ago.

Steel Prices

Tokyo-based Nippon Steel Corp. will increase contract prices of steel plates for domestic shipbuilders by about 40 percent, or 30,000 yen ($279) a ton, by Sept. 30, steel traders said June 18.

The U.S. credit crisis widened in the latest quarter to ensnare automakers including Toyota and General Motors Corp., which added to reserves against bad debts and losses on the residual value of vehicles returned at the end of lease contracts.

``If oil prices keep rising, limiting financial strength at Japanese companies, it's inevitable we'll see a significantly negative impact on capital investment and consumer spending,'' Rei Tsuruta, an economist at Mitsubishi UFJ Research & Consulting Co., said in a report dated Aug. 7

Shinko said it surveyed non-financial companies listed on the first section of the Tokyo Stock Exchange, which announced first-quarter earnings by Aug. 7. The results indicated a 4.1 percent average jump in sales, higher than the 3.6 percent gain forecast in June.

The Nikkei newspaper today reported its own survey of domestic companies, showing expectations for a 9.2 percent decline in pretax profit this year.

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net.