UPDATE 1-Canon profit climbs as strong office equipment business masks camera downturn

Thu Jul 24, 2014 3:19am EDT

(Adds CFO comment, details from earnings report)

TOKYO, July 23 (Reuters) - Japan's Canon Inc said second-quarter operating profit jumped 12 percent to its highest for any quarter in nearly three years, as strong earnings in overseas office equipment offset continuing weakness in its camera business.

Canon said on Thursday that operating profit for April to June grew to 110.6 billion yen ($1.09 billion) from 98.3 billion yen in the same period a year earlier. That was in line with a 110 billion yen profit estimate reported in the Nikkei business daily two weeks ago, which had exceeded analyst expectations.

The robust performance in its office equipment business and cost reductions across the company helped Canon to maintain its operating profit forecast for the full year at 365 billion yen, despite cutting full-year camera sales forecasts on Thursday.

The world's biggest camera maker by unit sales cited weak demand for compact models as consumers increasingly turn to their smartphones to take photos. Canon chief financial officer Toshizo Tanaka told reporters at a briefing the company hoped this year would mark the bottom for the compact camera market, which was now roughly half the size it was at its peak.

The strong office equipment earnings at Canon, one of the first of Japan's technology companies to report earnings for April-June, provided a stark contrast to declines in the country's overall exports in the past two months.

Sluggish exports remain a weak spot in the world's third-largest economy and a cause for concern among policymakers.

Net profit in the latest quarter rose 22 percent to 80.8 billion yen, even as revenue dipped 4.1 percent to 926.8 billion yen. Profit was buoyed by the company's continuing efforts to reduce costs: CFO Tanaka said Canon expects cost cuts this year of 41 billion yen, up from the 39 billion it achieved last year.

If Canon reaches its full-year forecast for operating profit, that would mark growth of 8.2 percent from the previous year as strong office equipment sales continue to mask the far-reaching downturn in its camera business.

Even sales to traditional photography buffs are under pressure. On Thursday Canon cut its unit sales forecast for high-end, single-lens reflex cameras, boasting superior image quality, to 9.5 million from 10.5 million for the year to December.

Canon CFO Tanaka said the market for the high-end cameras is recovering more slowly than expected in Europe and Southeast Asia but that the company did not see the fall in sales as a consequence of consumers using smartphones more.

The company's stock rose 0.8 percent on Thursday, outperforming a 0.3 percent fall in the benchmark Nikkei . The earnings announcement came after the end of share trading for the day.

($1 = 101.4700 Japanese Yen) (Reporting by Sophie Knight and Reiji Murai; Editing by Edmund Klamann and Kenneth Maxwell)

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