Sony (SONY): Record Quarter, Raised Guidance — And an Earthquake That Isn’t In It

Sony Group Corporation (SONY) Q1 FY2026 — Q1 FY2026 = the 3 months ended 30 June 2026, Q1 of the fiscal year ending 31 MARCH 2027. Sales ¥2,837.8B, +8.2% reported but about MINUS 1% in constant currency. Operating income ¥476.5B, +40.2%, a record Q1, margin 16.8% vs 13.0%. Net income ¥342.2B, +32.1%. Diluted EPS ¥57.82 vs ¥42.84 = $0.36 per ADS (1 ADS = 1 common share, FX ¥159.0). FY2026 operating income guided UP to ¥1,720B from ¥1,600B. The ADR traded near $23.30, +2.4%. That forecast excludes the 2026 Kumamoto Earthquake of 28 July, three days before the print: Sony's Kumamoto Technology Center suspended production, and Sony says the impact cannot yet be reasonably estimated. It is a disclosed, unquantified hit to the segment that delivered half the profit growth. PlayStation earned ¥202.0B (+37%) on FLAT sales with hardware, software and playtime all down, lifted by US tariff refunds and ¥19.1B of currency. And only about 53% of forecast operating income becomes free cash flow. THE CALL: HOLD (3/5, RECORD QUARTER, FULL PRICE) — base-case value ~$22.9 vs ~$23.3 today. KEY METRICS: - ADS RATIO: 1 SONY ADS = 1 common share (5,965.3M issued less 92.9M treasury = 5,872.5M out). All $ at USD/JPY 159.0 - Sales ¥2,837.8B (+8.2% reported, about −1% CONSTANT CURRENCY); yen averaged ¥159.3 vs ¥144.6; FX added ¥81.7B to G&NS sales alone - Operating income ¥476.5B (+40.2%), record Q1, margin 16.8% vs 13.0%; pre-tax ¥477.5B; net income ¥342.2B (+32.1%); EPS ¥57.82 = $0.36/ADS - Game & Network Services: sales ¥937.1B (FLAT), OI ¥202.0B (+37%) on US tariff refunds + ¥19.1B FX; PS MAU 125M (+2%), playtime −4% - Imaging & Sensing: sales ¥512.7B (+26%), OI ¥122.2B (+125%) on customer/product MIX, not units; adj. OIBDA ¥188.7B vs ¥120.1B - Music: sales ¥562.0B (+21%), OI ¥105.9B (+14%); USD streaming +10% recorded / +8% publishing - Entertainment, Tech & Services: sales ¥543.9B (+2%), OI ¥42.6B FLAT — only flat because FX added ¥9.5B while memory costs rose - Pictures: sales ¥315.1B (−4% yen, −13% in USD), OI ¥24.8B (+33%); Crunchyroll past 21M subs - FY2026 GUIDANCE RAISED (year to 31 Mar 2027): sales ¥12,500B, OI ¥1,720B (from ¥1,600B, +18.8% y/y), net income ¥1,210B, OCF ¥1,500B; dividend ¥35 from ¥25 - THE 2026 KUMAMOTO EARTHQUAKE (28 July) is NOT in that forecast — the Kumamoto sensor fab suspended production; Sony says the impact cannot yet be reasonably estimated - Financial Services SPUN OFF 1 Oct 2025 → discontinued operation; five segments now, not six - 30 Jun 2026: cash ¥2,170.0B less ¥1,204.2B debt = NET CASH ¥965.8B (~$6.1B); equity ratio 52.2% - Q1 cash: operating ¥197.4B (DOWN from ¥253.9B) less ¥137.9B capex = ~¥59.6B FCF; content +¥160.8B, inventory +¥129.4B, tax ¥129.1B - Capital return: ¥127.5B buyback and 184.5M shares CANCELLED (6,149.8M → 5,965.3M issued) - Our DCF, in YEN: owner FCF ¥920B (¥1,500B guided OCF less ~¥580B capex), +8% 5yrs then +4%, 2.25% terminal at 8.5% → EV ¥20,403B + ¥965.8B net cash ÷ 5,872M shares = ¥3,639 = ~$22.90/ADS What to watch: Bullish triggers: a second FY2026 upward revision in November that absorbs the Kumamoto impact and still rises, or Imaging & Sensing operating income tracking above ¥500B against the ¥420B guided. Bearish confirmation: Kumamoto restoration slipping past Q2, ET&S operating income falling below ¥120B for the year against ¥150B guided, or a further cut to mobile-sensor volumes. We'd buy nearer ~$19.50 — where the ADR actually traded on 25 June 2026. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.