Nintendo (NTDOY) increases FY 2022 profit guidance

Nintendo just reported their Q2 2022 earnings results, and the company somehow increased their earnings forecast for the fiscal year ending March 31, 2022.


Well, you know the song and dance by now, kiddies. Ole Captain Business never sleeps during earnings season and tonight Nintendo reported their results for the first half of their fiscal year 2022. The company did provide an update to their full year expectations, leaving net sales untouched but increasing their profit projections. Nintendo noted that some of the increase in earnings projections is due to their new assumed Euro exchange rate for the upcoming two quarters, but there appear to be a number of factors involved.

Nintendo's financial forecast for the fiscal year ending March 31, 2022.
Nintendo's financial forecast for the fiscal year ending March 31, 2022.

Nintendo provided the following statement with their updated guidance:

Based on the impact on Nintendo Switch hardware production due to the factors such as the semiconductor shortage and the sales performance of Nintendo Switch software for the actual and after, the Company modifies its financial forecast in consideration of the revised sales prospects as well as the revised assumed exchange rate.

The assumed exchange rate after the second quarter and at the end of the fiscal year has been revised from 120 yen to 125 yen per euro. The assumed exchange rate for U.S. dollar remains unchanged at 105 yen per U.S. dollar.

Forecasts announced by the Company referred to above were prepared based on management's assumptions with information available at this time and therefore involve known and unknown risks and uncertainties. Please note such risks and uncertainties may cause the actual results to be materially different from the forecasts (earnings forecast and other forecasts). In addition, the number of outstanding shares used for calculating "Profit per share" is the estimated average number of outstanding shares for each applicable period.

This increase in profit projections is quite surprising as news broke earlier this week about Nintendo's chip supply issues hampering Switch unit sales. The idea that the company would maintain their revenue guidance while upping their profit expectations for the full year ending in March 2022 is really an unexpected outcome for some investors, but I can't help but consider how the nearly $1 billion share buyback affected this.

There are a lot of moving parts in this story, as the company has cut their unit sales target for Nintendo Switch by 1.5 million consoles. The Big N also mentions a benefit from a change in the assumed Euro exchange rate. The new assumption is currently 125 yen up from 120 yen per Euro. Nintendo also increased their full year software sales expectations by 5.2%, which likely helped offset issues with Switch supply.

The end result of the different factors behind today's boost in earnings guidance leads to a 3.88% increase in projected earnings-per-share (EPS). Nintendo (7974) shares closed in Japanese trading at 49,140 yen/share. The new projected EPS of 2,964.97 yen/share would put the stock at a 16.57 forward P/E ratio. Interestingly enough, today's increase of the full year operating profit guidance to 520 billion yen ($4.6 billion) from 500 billion yen still puts Nintendo's projections well below the consensus expectation on Wall Street of 610 billion yen ($5.34 billion). One thing is for certain, Nintendo's management has been extremely careful about managing expectations following their tremendous results last year.

Another neat bonus for Nintendo (NTDOY) shareholders is that the company has boosted the expected annual dividend payout from 1,430 yen to 1,490 yen per share. That is close to a 3% annual dividend yield on the stock. 

It really seems like Nintendo and many other companies would be able to produce some tremendous results if it weren't for this dang chip shortage. Switch sold 3.83 million units in the quarter, which was less than Q1 2022. And I can't find a new graphics card. Godspeed to anyone who needs to buy anyone a gift this Holiday season.

This article is only meant for educational purposes, and should not be taken as investment advice. Please consider your own investment time horizon, risk tolerance, and consult with a financial advisor before acting on this information.

Full Disclosure:

At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long Nintendo via NTDOY shares 

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