Canon published its Q2 financial results for 2024 today and while the company’s global numbers look stronger than earlier this year, Canon’s domestic camera sales remain a major weak point.
To broadly say that Canon’s camera sales are falling is inaccurate but there are several layers to the financial results that are worth looking at: poor domestic sales, the company’s plan to reduce its workforce outside of Japan, and a massive stock buyback program.
Canon Cameras Are Selling Poorly in Japan
While Canon’s global financial statements show that its imaging division rebounded from last quarter’s dip, the company doesn’t appear to be very popular in its homeland. Canon Marketing Japan Group, a subsidiary of the larger Canon Inc., reports sales data independent of the company as a whole. It’s the only region that appears to do this and there the company revealed that its interchangeable lens cameras (ILC) sales aren’t doing well. Sales for Q2 were down 14% following a dip of 31% in the previous quarter. In fact, Canon in Japan has not performed well for a year, with the last four quarters dipping negative.
As an illustration of the situation, the “Asia and Oceania” segment of the business — which does not include Japan — saw its sales in total outpace its domestic performance, which was not the case during the first half of 2022 or 2023.
Canon Marketing Japan Group expects the full 2024 to level at 1% growth by year’s end. Given the losses it has already sustained, the company is heavily banking on the success of the new cameras it just announced in the EOS R1 and EOS R5 Mark II. Given that the R1 isn’t going to likely move a ton of units domestically, Canon likely believes the R5 Mark II will be a success. That makes sense, given that the last high-performance camera from the company — the R6 II — has sold well.
“In the Imaging Business Unit, interchangeable-lens digital camera’s performance was solid due to steady sales of the EOS R6 Mark II full-frame mirrorless camera and the new entry-level EOS R50, along with increased sales of digital compact cameras,” Canon reports.
Global Numbers Are Steady
Globally, Canon’s numbers are a lot better: Q2 sales are up 11.6% and operating profit is up 19%, although operating profit is still down 22.9% for the year. The company cites strong network camera sales and a weak yen for the improvement. While it specifically notes stronger performance from network cameras, as shown above, it only says that consumer camera sales remain “steady,” specifically saying the R6 II is the camera most notably responsible for this. Looking ahead, Canon says the launch of the R1 and R5 II will be major drivers of sales for the rest of the year.
“In the second half of the year, we will launch two new mirrorless models, the EOS R1, our flagship mirrorless model, and the EOS R5 Mark II, a new mainstream model for professionals and advanced amateurs, and aim to secure an overwhelming No. 1 market share position,” the company says.
“For the EOS R5 Mark II, a core model for professionals and advanced amateurs that will launch in August, through the use of a newly developed imaging engine system and deep learning technology, significant advancement in both photo and video performance has been achieved. And since being announced on the 17th of this month, the market’s response has been huge,” Canon continues.
“Furthermore, by launching in November the EOS R1, our first flagship mirrorless model, we will work to solidify our position as a leader in this industry even in mirrorless cameras.”
Of note, imaging is Canon’s second most profitable segment and accounts for 25% of its profit margin. The printing division is the most profitable by far and accounts for 69% of profit margin. Looking at these numbers, PetaPixel does not see a financial reason for the layoffs that hit Canon USA earlier this month. On that note…
Reduction in Overseas Workforce
Speaking at a Q&A session on Corporate Strategy in March, Canon said that it was looking at “optimizing” its operating expenses by lowering its cost-to-revenue ratio from 38.1% in FY 2023 to 35.0% in FY 2025 by “reducing the number of overseas sales and service personnel” and “transforming our sales organization so that it aligns with our current situation of expanding B-to-B (Business to Business) sales.”
The goal would be to decrease staff costs, and Canon made good on that promise this month when it hit Canon USA with substantial layoffs which included the much beloved Rudy Winston. Canon’s choice to reduce staff internationally, where its sales are strongest, instead of domestically, where its sales are weakest, likely feels particularly unfair to its global workforce. It also seems shortsighted, as reducing the effectiveness of the company’s best-performing teams doesn’t seem like a strong recipe for future success.
Huge Stock Buyback
At the end of Canon’s Q2 2024 financial statement, the company revealed it would be participating in a stock buyback of 20,000,000 shares at a price of 4,091 yen per share. The total value of this transaction comes to $532.8 million at current exchange rates.
While Canon has done multiple stock buybacks before, every instance in the last decade that PetaPixel looked at found it to never exceed 2% of total shares. This time its 16.8%.
PetaPixel’s Take
It’s easy to look at Canon Marketing Japan’s presentation and take from it “the sky is falling,” but it’s only one small slice of the whole picture. I don’t know what Canon’s plans are for addressing its poor domestic performance, but some of the actions it is taking that coincide with this full year of weak sales have poor optics.
For example, cutting its overseas workforce — where sales are stronger — while also initiating a massive $532.8 million stock buyback doesn’t look great. Companies repurchase their own stock for several reasons, but mainly it does so to consolidate ownership or preserve stock prices (or return them to “real” value). Stock buybacks take cash — cash that could be spent on people, so there is a real consequence for initiating them. It doesn’t look great when Canon lays off people and, at the same time, spends more on stock buybacks than it has in recent memory.
Canon also says that last quarter’s losses were affected by backorder issues with its network cameras that have now been resolved. Still, earlier this year when this was most prevalent, Canon indicated that consumer cameras were more to blame for declining profits than problems in the network camera division.
“A little over 50% of the decline in profit is linked to Cameras, 30% to Network Cameras,” Canon said in a Q&A session after publishing its Q1 financial results. “The decline in Camera profit reflects not only lower unit sales but also increased promotional expenses.”
Canon has not published any Q&A session related to the Q2 numbers at the time of writing.
One last thing worth noting is that earlier this year, Canon indicated that it plans to “accelerate the shift to high-value-added models by enhancing our lineup of mirrorless cameras.” We read that as “fewer low-price, entry-level camera models” and more focus on cameras like the R6 II and R5 II. Given how enthusiastic Canon is at the launch of the R5 II, that emphasis tracks.
Image credits: Header photo licensed via Depositphotos.