Ricoh: Printers and Profits

06/23/2015 10:00 am EST


James Pearce

Director of Research, Investing Daily

With annual sales of roughly $18 billion, this Japan-based recommendation is one of the largest integrated printer companies in the world, explains Jim Pearce, editor of Smart Tech Investor.  

Investors have been slow to embrace Japan-based Ricoh (RICOY) as it continues to grapple with turning around a massive ship in choppy waters.  

Ricoh continues to tinker with its product development to grow revenue. It should not shock any investor that demand for large scale corporate printers and copiers is a stagnant business.  

However, Ricoh is attempting to reinvigorate sales with the introduction of specialized production printing options. Customized formatting options for billing and direct mail templates can help Ricoh expand sales to new customers.  

Scanners still are a source of growth as companies must digitally convert and warehouse the stacks of paper documents that still litter their desks.

Although Ricoh is a global company, 60% of its sales are still generated from Japan. The Japanese economy has been shrinking rapidly due to a draconian increase in its consumption tax. That tax was increased by 60% from 5% to 8% in April 2014.  

Another massive increase to 10% slated for October 2015 has been delayed as Japanese Prime Minister Shinzo Abe ponders how to counteract Japan’s withering GDP. Poor economic numbers have a secondary influence on Ricoh as well.  

As a foreign company, Ricoh reports earnings less frequently than its US-based counterparts. On April 28, the company reported earnings for the year ending March 2015 as well as the quarter ending March.

For the year, Ricoh’s revenue was up almost 2% but its earnings were down 4%. Domestic Japanese sales were flat versus last year. Revenue for the rest of the world was up nicely, but after adjusting for foreign exchange valuations, would have been flat.

The yen lost 15% of its value versus the dollar in Ricoh’s fiscal 2015 year and has shrunk another 4% since then. Management’s guidance for 2016 is predicated on a slight improvement in the value of the yen.

Management estimates that Ricoh can grow revenue 7.5% in 2016 and earnings 20%. While this may appear frivolous, there is a real chance Ricoh can grow earnings nicely next year.

Meanwhile, the stock offers a healthy 2.2% dividend yield and trades at a relatively low PE of 12. Although cash flow generation was down in 2015, it was still four times the amount needed to cover the dividend payment.

Despite a 5-for-1 stock split in January, the volume traded on Ricoh is still very thin, with daily trading volume averaging only 9,000 shares.

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