AKIKAWA FOODS & FARMS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.07B
• Operating Income: ¥15M
• Net Income: ¥19M
• EPS: ¥4.70

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed but improving quarter—revenue grew solidly and ordinary/net profits rebounded, yet core operating profitability remains razor-thin and leverage/interest coverage are stressed. Revenue rose 7.9% YoY to 40.73, lifting gross profit to 9.91 and gross margin to 24.3%. SG&A consumed 9.76 (23.9% of sales), leaving operating income at just 0.15 (operating margin ~0.37%). Ordinary income surged 132.6% YoY to 0.39 as non-operating income (0.45) more than offset weak operating profit, while net income more than doubled to 0.19 (+150% YoY). EBITDA reached 2.53 (6.2% margin), underpinned by 2.38 of D&A. Cash generation was strong relative to earnings: operating cash flow was 2.22, or 11.66x reported net income, aided by working capital and non-cash charges. A proxy FCF using reported capex indicates a slim positive ~0.20 (OCF 2.22 minus capex 2.02), but we lack full investing cash flows to confirm. Leverage remains elevated with D/E at 2.19x and debt/EBITDA at 12.23x; interest coverage is weak at 0.97x, highlighting debt-service vulnerability. Liquidity is tight (current ratio 1.05, quick ratio 0.89), and reliance on short-term loans (15.29) is high versus cash (7.54) and working capital (1.31). ROE is low at 0.9%, driven by thin net margins (0.5%) and modest asset turnover (0.59), despite high financial leverage (3.19x). Reported effective tax rate was elevated at ~52%, likely reflecting a low pre-tax base and/or non-deductible items. Non-operating income (dividends/interest and other items) materially supported earnings this quarter, pointing to quality questions in core operations. Given the poultry/food context, cost pass-through of feed and energy, and stabilization of input costs are critical to cement the earnings recovery. Near term, maintaining positive OCF and carefully pacing capex are essential while addressing leverage and refinancing risk. Absent sustained operating margin expansion, the combination of high leverage and sub-1x interest coverage remains a key constraint on financial flexibility.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.9% = Net Profit Margin (0.5%) × Asset Turnover (0.590x) × Financial Leverage (3.19x). The binding constraint is profitability: an ~0.5% net margin on 24.3% gross margin and 24.0% SG&A leaves only ~0.3–0.4% operating margin, necessitating non-operating support to reach ordinary profit. Asset turnover at ~0.59x is modest for a food producer/distributor, suggesting a relatively asset-heavy base (notably PP&E supporting integrated operations) relative to revenue scale. Financial leverage is high (3.19x assets/equity), amplifying returns slightly but primarily increasing risk rather than delivering meaningful ROE uplift given the thin margin. Change analysis is limited by missing YoY margin/turnover data; however, the large YoY increase in ordinary and net income indicates improved non-operating contribution and/or better gross spread, not a step-change in operating margin. Business drivers: improving revenue throughput (+7.9% YoY) and potential easing of cost pressures likely aided gross profit, but SG&A absorption remains tight. Sustainability: without structural SG&A efficiency or price/mix improvements to lift operating margin above 1–2%, gains may not be durable; reliance on non-operating income is not a sustainable profit engine. Watch-outs: SG&A (9.76) at ~24% of sales is high; if SG&A growth outpaces revenue again, operating leverage turns negative. Non-operating income (0.45) exceeds operating income (0.15), pointing to quality concerns in the earnings mix.

Growth Assessment

Top-line growth of 7.9% YoY to 40.73 appears healthy, suggesting improved volumes and/or price/mix. Gross profit of 9.91 implies the company maintained a 24.3% gross margin despite cost pressures—an encouraging sign for cost pass-through. Ordinary income rose 132.6% YoY to 0.39 and net income rose 150% to 0.19, but the level remains low in absolute terms, with net margin at ~0.47–0.50%. Operating income of 0.15 indicates core margins are still fragile, and improvements rely partly on non-operating contributions (0.45). EBITDA margin at 6.2% offers some cushion, but debt-servicing absorbs much of the benefit given 0.97x interest coverage at the EBIT level. Outlook hinges on stabilizing feed/energy costs and continued pricing discipline; incremental SG&A efficiency and utilization of existing capacity could unlock operating leverage. Absent visible segment data, we assume growth is broad-based within poultry/processed foods and distribution. Near-term growth should focus on higher-margin SKUs and direct-to-consumer or branded channels to improve mix. Risk to growth: any relapse in input costs or inability to pass through costs could compress the slim operating margin. Net-net, revenue momentum is constructive, but profit quality and durability depend on margin improvements within core operations.

Financial Health

Liquidity: Current ratio 1.05 is just above the 1.0 threshold (warning if <1.0), and quick ratio 0.89 is below 1.0—liquidity is tight. Working capital is only 1.31, and short-term loans total 15.29 versus cash 7.54 and accounts receivable 9.37, highlighting reliance on bank lines. Solvency: Debt-to-equity 2.19x exceeds the 2.0 warning level; total debt (short-term 15.29 + long-term 15.71) is substantial versus equity of 21.64. Debt/EBITDA is high at 12.23x, indicating constrained debt capacity. Interest coverage is weak at 0.97x (warning threshold <2x), reflecting limited headroom against interest expense (0.15) with EBIT (0.15). Maturity mismatch: Elevated short-term borrowings relative to current assets and modest working capital create refinancing risk if credit conditions tighten. No off-balance sheet obligations were reported in the data provided. Overall, balance sheet risk is elevated due to high leverage and weak coverage, requiring disciplined cash and capex management.

Cash Flow Quality

Earnings quality is high this quarter on a cash basis: OCF of 2.22 is 11.66x net income (0.19), supported by strong D&A (2.38) and likely favorable working capital. Proxy free cash flow is modestly positive at ~0.20 using capex of 2.02 (Investing CF not fully disclosed), suggesting internally generated funds roughly covered investments. Financing CF was -2.22, indicating OCF was substantially used for debt service/repayment and interest, keeping net cash stable. Sustainability: Maintaining OCF above 2.0 is critical given low EBIT/interest coverage; any working capital reversal could quickly compress cash generation. No clear signs of working capital manipulation are evident from limited disclosures, but tight liquidity and large short-term debt warrant monitoring of receivables collection and inventory turnover. With many CF items unreported (full investing details, dividends), conclusions are tentative.

Dividend Sustainability

Dividend data are largely unreported; however, a calculated payout ratio of 219.9% implies dividends exceed net income materially—if accurate, this is not sustainable given leverage and low operating margin. Proxy FCF of ~0.20 barely covers any hypothetical dividends and competes with debt service and maintenance capex. With interest coverage at 0.97x and current ratio near 1.0, preserving liquidity should take precedence over distributions. Policy outlook: absent explicit guidance, we assume a cautious stance is warranted until operating margins normalize above 1–2% and leverage declines. Given data gaps (no DPS, total dividends paid, or formal payout policy), assessment remains provisional.

Risk Assessment

Business Risks:

• Feed cost and energy price volatility impacting gross margin (corn/soymeal, fuel).
• Avian influenza or disease outbreaks disrupting production and demand.
• Pricing power constraints with retailers limiting cost pass-through.
• Operational execution risk in processing/logistics given asset intensity and SG&A burden.

Financial Risks:

• High leverage (D/E 2.19x) and weak interest coverage (0.97x) elevate refinancing and covenant risk.
• Liquidity tightness (current ratio 1.05, quick ratio 0.89) under significant short-term debt (15.29).
• Debt/EBITDA of 12.23x suggests limited capacity to absorb shocks or fund growth without equity.
• Potential interest rate risk if borrowings are floating-rate.

Key Concerns:

• Core operating margin ~0.37% with dependence on non-operating income (0.45 > operating income 0.15).
• ROIC at 0.2% well below cost of capital, risking value dilution if sustained.
• Elevated effective tax rate (~52%) depresses net returns when pre-tax profit is low.
• Data limitations (investing CF, dividend details, segment data) constrain visibility.

Investment Implications

Key Takeaways:

• Solid top-line growth (+7.9% YoY) but core operating margin remains thin (~0.37%).
• Earnings rebound driven in part by non-operating income; quality of profit is mixed.
• OCF strong (2.22) relative to net income (0.19), enabling modest proxy FCF after capex.
• Balance sheet risk is elevated: D/E 2.19x, interest coverage 0.97x, debt/EBITDA 12.23x.
• Liquidity tight with current ratio 1.05 and heavy short-term borrowings (15.29).
• ROE 0.9% constrained by low net margin (0.5%) and modest asset turnover (0.59).

Metrics to Watch:

• Operating margin progression (target >1–2% near term).
• SG&A ratio versus revenue growth for operating leverage.
• Feed/energy cost indices and pricing pass-through in ASPs.
• Interest coverage and schedule of short-term debt rollovers.
• OCF sustainability and working capital turns (AR and inventory days).
• Capex pace versus cash generation; debt reduction trajectory.
• Effective tax rate normalization as earnings scale.

Relative Positioning: Within domestic poultry/processed food peers, the company exhibits decent revenue momentum but weaker financial resilience due to higher leverage, tight liquidity, and subpar ROIC; near-term performance depends on realizing operating margin uplift and de-risking the balance sheet.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis