FEED ONE (2060) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the company achieved higher operating income despite lower revenue, with profitability improving. Revenue was ¥2906.8B (down 1.8% YoY), operating income was ¥80.9B (up 27.6%), ordinary income was ¥86.1B (up 26.9%), and net income was ¥64.1B (up 16.8%). The primary driver of the increase in earnings was improved profitability, particularly in the core Livestock Feed Business, reflecting changes in raw material market conditions; the gross margin rose from 10.8% to 11.6%.

Factors Affecting Performance

【Revenue】Revenue was ¥2906.8B, down 1.8% YoY. The two core businesses posted lower revenue: the Livestock Feed Business, which accounted for 77.0% of the revenue mix, declined 3.7% to ¥2237.4B, while the Aquatic Feed Business declined 3.0% to ¥248.6B. In contrast, the Food Business increased 10.3% to ¥420.5B, partially offsetting the company-wide revenue decline.

【Profitability】Due to a lower cost-of-sales ratio, gross profit improved to ¥338.5B (gross margin of 11.6%, compared with 10.8% in the previous year). Selling, general and administrative expenses were contained at approximately ¥257.6B, resulting in operating income increasing to ¥80.9B (operating margin of 2.8%, compared with 2.1% in the previous year). Ordinary income reached ¥86.1B after adding ¥9.2B in non-operating income (¥2.0B in dividend income and ¥3.4B in equity-method investment gain). Extraordinary gains and losses were nearly offset by a ¥1.0B gain on the sale of fixed assets and ¥1.1B in disposal losses and other items, resulting in a limited impact on net income. The company achieved higher earnings despite lower revenue, with profitability improvements driven by cost control and the pass-through of higher costs into selling prices.

Segment Analysis

The Livestock Feed Business achieved significant improvement, with segment income (on an ordinary income basis) of ¥102.4B (up 20.0%) against revenue of ¥2237.4B (down 3.7%), resulting in a profit margin of 4.6%. The Aquatic Feed Business also increased its profit margin to 5.7%, with profit of ¥14.3B (up 22.5%) against revenue of ¥248.6B (down 3.0%). A key feature was the improvement in profit margins in both businesses despite lower revenue. Meanwhile, the Food Business increased revenue by 10.3% to ¥420.5B, but profit declined 42.6% to ¥1.6B, with the profit margin falling to 0.4%; consequently, the contribution of higher revenue to earnings was limited. The Livestock Feed Business accounted for approximately 86.6% of total company profit, indicating a high degree of earnings dependence on this business.

Key Financial Indicators

【Profitability】The operating margin of 2.8% (2.1% in the previous year) and net profit margin of 2.2% (1.8% in the previous year) both improved. However, together with a gross margin of 11.6%, they remain low for the food and beverage industry, indicating an earnings structure with high sensitivity to raw material prices and foreign exchange fluctuations. ROE was 10.3%, reflecting a structure in which high total asset turnover and financial leverage offset the low net profit margin.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥170.9B, or 2.7 times net income of ¥64.1B, indicating solid cash support for reported earnings.【Investment Efficiency】Capital expenditures of ¥123.2B were 3.1 times depreciation expense of ¥39.3B, while construction in progress of ¥80.0B accounted for 20.6% of property, plant and equipment, indicating an expansionary investment phase.【Financial Soundness】The equity ratio was 46.9% and the current ratio was 184.7%, both representing stable levels of short-term payment capacity and capital strength.

Cash Flow Analysis

OCF increased significantly by 99.4% YoY to ¥170.9B, demonstrating cash generation substantially exceeding net income of ¥64.1B. Improvements in working capital, including a ¥17.2B decrease in inventories, a ¥19.7B increase in accounts payable, and a ¥5.8B decrease in accounts receivable, contributed to the result. While these factors reflect improved short-term funding efficiency, they could also cause OCF growth to slow if reversed. Investing Cash Flow was an outflow of ¥115.5B, primarily reflecting expansionary investment, including ¥123.2B for the acquisition of property, plant and equipment and intangible assets. As a result, free cash flow remained positive at ¥55.4B, indicating that the company retains sufficient capacity to fund investment with internal cash even during a period of large-scale investment. Financing Cash Flow was an outflow of ¥47.3B. While the company raised ¥100.0B through long-term borrowings, it significantly reduced short-term borrowings, extending the maturity profile of its debt. Cash and deposits at the end of the period were ¥111.4B, an increase of ¥8.1B during the period.

Earnings Quality

The increase in earnings was primarily attributable to improvements in recurring operating performance. Extraordinary gains and losses (a ¥1.0B gain and a ¥1.1B loss) were nearly offset, and the contribution of temporary factors was limited. Of the ¥9.2B in non-operating income, dividend income of ¥2.0B and equity-method investment gain of ¥3.4B (up from ¥1.3B in the previous year) boosted ordinary income. However, these represent income sources separate from the core operations and were the primary cause of the ¥5.2B gap between ordinary income and operating income. OCF reaching 2.7 times net income indicates consistency between accounting earnings and actual cash generation, and earnings quality can also be viewed favorably from an accruals perspective. However, the OCF boost from working capital improvements may be temporary, and its sustainability from the next fiscal year onward needs to be monitored.

Earnings Forecast and Guidance

For the next fiscal year (the fiscal year ending March 2027), the company disclosed forecasts of revenue of ¥3170.0B (up 9.1%), operating income of ¥85.0B (up 5.1%), ordinary income of ¥88.0B (up 2.2%), and EPS of ¥169.85. While the company expects revenue growth following the decline in the current fiscal year, the plan assumes that the revenue growth rate will exceed the earnings growth rate. This incorporates an expectation that profit margins will not rise significantly as revenue increases, even as the company maintains the profitability improvements achieved in the current fiscal year. The company appears to plan to achieve both revenue growth and the maintenance of profitability as ongoing capital investments accompanied by construction in progress become operational.

Shareholder Returns

The annual dividend for the current fiscal year was ¥45.5 per share (¥21.0 interim and ¥24.5 year-end). The interim dividend included a regular dividend of ¥16.0 and a commemorative dividend of ¥5.0. The payout ratio was 27.3%, below the generally sustainable level of approximately 60%. No share repurchases were conducted, and shareholder returns consisted solely of dividends. Against total dividends of ¥17.5B, OCF of ¥170.9B and free cash flow of ¥55.4B indicate ample cash capacity to pay dividends. For the next fiscal year, the company expects to increase the dividend to ¥52.0 per share (up 14.3%), implying a payout ratio of approximately 30.6% against forecast EPS of ¥169.85.

Risk Factors

1. Business concentration risk: The Livestock Feed Business accounts for 77.0% of revenue and 86.6% of segment income, creating a structure in which fluctuations in raw material market conditions and livestock demand in this business have a substantial impact on consolidated performance.

2. Low-margin structure risk: The operating margin of 2.8% and gross margin of 11.6% are both low for the food and beverage industry. If increases in raw material prices, foreign exchange rates, and logistics costs cannot be sufficiently passed through into selling prices, profit margins may come under rapid pressure.

3. Capital investment recovery risk: Construction in progress totals ¥80.0B, accounting for 20.6% of property, plant and equipment. If ongoing large-scale capital investments experience delays in becoming operational or insufficient demand, the efficiency of invested capital may decline due to increased depreciation expenses.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (food_beverage)

Profitability and Returns

The company's profitability is below the industry median, reflecting its low-margin structure centered on the feed business.

Growth and Capital Efficiency

The revenue growth rate is also substantially below the industry median, positioning the company among the industry's revenue decliners.

Source: Compiled by the company

Key Points from the Financial Results

1. Despite the decline in revenue, operating income increased by +27.6%, confirming improved profitability through gross margin expansion (10.8%→11.6%) and control of selling, general and administrative expenses. The fact that the Livestock Feed and Aquatic Feed Businesses increased their profit margins despite lower revenue represents a notable structural change.

2. OCF reached 2.7 times net income, and the company is planning a next-year dividend increase (+14.3%) while securing free cash flow of ¥55.4B. The cash support for earnings and dividends is solid.

3. Construction in progress of ¥80.0B (20.6% of property, plant and equipment) indicates ongoing large-scale capital investment. The timing of commencement of operations and utilization rates will determine future depreciation expenses and the sustainability of profit margins, making these key monitoring points.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,627–¥1,722 at ±1% for the cost of equity, and ¥1,672–¥1,676 at ±0.1 for ω.

(Calculation model: Residual Income Model (Ohlson-type・explicit 5-year fade) / Interest rate reference month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute a forecast of the market stock price or a recommendation of any specific investment action, nor do they predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL financial results summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed financial results data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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