Moody’s lowers credit ratings for Panasonic due to weak earnings

Bloomberg

Panasonic Corp., which is trying to recover from a record annual loss, had its credit ratings cut by Moody’s because of weak earnings and higher debt.

The company’s long-term credit rating was lowered by two levels to Baa1 from A2, while its short-term rating was cut one rank to Prime-2 from Prime-1, according to a statement from the ratings company Monday.

Both ratings are assigned with a stable outlook, Moody’s said.

The ratings downgrade is due to the company’s low profitability and net debt that increased almost eightfold after acquisitions of Sanyo Electronics Co. and Panasonic Electric Works Co., Moody’s said.

Falling TV prices and a stronger yen are “a long-term structural disadvantage that will be difficult to overcome” for Panasonic, Moody’s said.

“The question remains whether Panasonic can restructure itself in a manner that generates consistent and sustainable competitive advantages in the TV and panel businesses,” it said, adding the firm is “plagued by weak consumer demand in major global markets, pressure from low-cost producers, and a stronger yen.”

The maker of Viera televisions and Lumix cameras is trying to turn around its unprofitable TV, electronic component and battery operations this fiscal year after closing plants and eliminating 36,000 jobs amid falling prices and the surging yen. New President Kazuhiro Tsuga pledged to revive the manufacturer “by all means.”

Panasonic, Japan’s biggest appliance maker, kept unchanged its full-year forecast to post net income of ¥50 billion for the year that started April 1, compared with a ¥772 billion loss the previous 12 months. The company may restructure businesses and withdraw from unprofitable operations, Tsuga said in July.

The company’s net debt increased to more than ¥950 billion at the end of June from about ¥120 billion at the end of March 2010, Moody’s said.

Panasonic will probably cut costs by ¥130 billion this fiscal year after reducing them by ¥64 billion in the first quarter from a year earlier, Chief Financial Officer Hideaki Kawai has said.

Sony Corp., Sharp Corp. and Panasonic are restructuring after competition with South Korea’s Samsung Electronics Co. and U.S.-based Apple Inc. pushed them into losses.

Last month, Moody’s said Sony’s Baa1 long-term rating and Prime-2 short-term rating may be cut. Moody’s cut Sharp’s short-term ratings to Not-Prime from Prime-3 earlier this month, citing a high level of short-term debt and weak operating performance.