FEED ONE (2060) FY2026 Q3 Earnings Report

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Executive Summary

The company achieved a significant increase in profit despite a decline in revenue, with improved profitability resulting from lower costs serving as the primary driver of earnings growth. Revenue amounted to ¥219.07B (down 2.9% year on year), while Operating Income rose significantly to ¥5.63B (up 31.8%), Ordinary Income to ¥6.15B (up 30.1%), and Net Income to ¥4.63B (up 21.7%). The principal factor behind the earnings increase was the decline in cost of sales at a faster pace than the decrease in revenue, which improved the gross profit margin to 11.5%.

Factors Affecting Results

【Revenue】Revenue amounted to ¥219.07B, down 2.9% year on year. The core Livestock Feed Business posted a 4.7% decline in revenue due to lower sales volume and feed selling prices, while the Aquatic Feed Business also reported a 7.9% decline in revenue. The decline in both feed businesses weighed on company-wide revenue. Meanwhile, the Food Business achieved 12.0% revenue growth; however, because the feed businesses account for a large proportion of the overall business mix, company-wide revenue remained on a declining trend.

【Profit and Loss】Operating Income increased significantly to ¥5.63B (up 31.8% year on year), Ordinary Income to ¥6.15B (up 30.1%), and Net Income to ¥4.63B (up 21.7%). Gross profit in the Livestock Feed Business improved due to the resolution of price revision gaps and a review of unprofitable sales, resulting in an 18.2% increase in segment profit. Segment profit in the Aquatic Feed Business also increased 33.9%, supported by expanded sales to corporate aquaculture customers and softer raw material prices. Ordinary Income includes ¥0.19B equivalent to a gain on negative goodwill arising from the additional acquisition of Sendai Feed, recognized within equity-method investment income; thus, it includes a partly nonrecurring factor. Extraordinary income and expenses consisted primarily of a ¥0.10B gain on the sale of fixed assets and a ¥0.00B impairment loss, resulting in a minor net impact. In conclusion, the company achieved higher profits despite lower revenue.

Segment Analysis

The Livestock Feed Business generated revenue of ¥167.76B (76.6% of the total), qualifying as the “core business.” Although revenue declined 4.7%, segment profit increased to ¥7.06B (up 18.2%), making it the central contributor to the improvement in company-wide earnings. The Aquatic Feed Business recorded revenue of ¥19.44B, down 7.9%, while segment profit increased 33.9% to ¥1.31B, with a 6.7% margin—the highest level among all segments. The Food Business generated revenue of ¥31.86B, up 12.0%, but segment profit declined 1.7% to ¥0.11B, resulting in a margin of only 0.4%; the increase in revenue has not translated into higher profits. Higher chicken egg prices and increased depreciation expenses for the new plant were factors behind the decline in the Food Business’s profitability. There is a significant disparity in profit margins between segments: the Aquatic Feed Business recorded a 6.7% margin compared with 0.4% for the Food Business, indicating uneven profitability across the business portfolio.

Key Financial Metrics

Profitability: ROE of 7.7% (annualized) and Operating Income Margin of 2.6% (1.9% in the same period last year)
Cash quality: Operating Cash Flow data is difficult to calculate from the disclosed information; however, Comprehensive Income of ¥6.26B exceeded Net Income of ¥4.63B
Investment efficiency: Construction in progress increased sharply by ¥4.56B year on year (+703.4%), indicating that investment in the construction of a new aquatic feed plant is underway
Financial soundness: Equity Ratio of 43.1% and Current Ratio of 173.9%

Cash Flow Analysis

While long-term borrowings increased by ¥9.23B (+64.1%), short-term borrowings decreased by ¥6.98B (▲54.2%), indicating a shift toward longer-term financing. This shift from short-term to long-term borrowings is intended to secure long-term funding for investment in the new aquatic feed plant, which is scheduled for completion in April 2028. Cash and deposits amounted to ¥12.24B, equivalent to 2.1 times short-term borrowings of ¥5.90B, indicating stable short-term liquidity. Total investment amounted to ¥8.28B on a cumulative Q3 basis, representing an 83% progress rate, with investment related to the new aquatic feed plant accounting for the majority. Cash generation is considered standard, but investment efficiency following the increase in long-term borrowings will require monitoring.

Earnings Quality

Ordinary Income of ¥6.15B compares with Net Income of ¥4.63B after deducting income taxes and other taxes of ¥1.56B; the difference is attributable to the tax burden and is not particularly abnormal. Ordinary Income includes ¥0.33B in equity-method investment income, of which ¥0.19B equivalent to a gain on negative goodwill arising from the additional acquisition of Sendai Feed is a nonrecurring element and should be distinguished from recurring earnings power. Non-operating income was ¥0.81B, or 0.4% of revenue, and was relatively small, raising no particular concerns. Comprehensive Income of ¥6.26B exceeded Net Income of ¥4.63B, primarily due to a ¥1.51B increase in valuation difference on securities.

Earnings Forecast and Guidance

Progress against the full-year forecast—Revenue of ¥311.00B, Operating Income of ¥6.80B, and Ordinary Income of ¥7.00B—was 70.4% for Revenue, 82.8% for Operating Income, and 87.8% for Ordinary Income. Compared with the standard progress rate of 75%, Revenue was slightly below expectations, while profits were substantially ahead, indicating that thorough profitability management has driven earnings progress. In the Aquatic Feed Business, segment profit had already reached ¥1.31B against the full-year forecast of ¥1.20B, representing a progress rate of 108.9% and exceeding the target. In Q4, price increases for livestock feed are expected, although sales volume may fall short of expectations. While Revenue remains exposed to downside risk, the company is expected to achieve its profit forecast by securing gross profit through price revisions. No revisions have been made to the forecasts.

Shareholder Returns

The full-year dividend forecast is ¥42.00. In Q2, the company paid ¥21.00, consisting of an ordinary dividend of ¥16.00 and a commemorative dividend of ¥5.00. Based on the full-year Net Income forecast of ¥5.20B, the Payout Ratio is approximately 30.9%, below the general benchmark of 60%. The dividend policy has shifted from a Payout Ratio-based policy to a progressive dividend policy based on a 3% DOE (Dividend on Equity) target, and the company has indicated its intention to maintain the ¥42 dividend in the fiscal year ending March 2027. No share buybacks have been confirmed, and shareholder returns consist solely of dividends; therefore, the Payout Ratio is the applicable metric.

Catalysts

【Short term】The degree to which livestock feed price revisions take effect in Q4, trends in sales volume, and movements in chicken egg prices will affect the profitability of the Food Business.

【Long term】Construction of the new aquatic feed plant began in October 2025 and is scheduled for completion in April 2028. The plant is expected to strengthen the earnings base of the Aquatic Feed Business through increased production capacity and efficiency.

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 the low-margin structure characteristic of the feed business.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median, with declines in feed sales volume and prices standing out within the industry.

※Source: Compiled by the company

Risk Factors

1. Concentration risk in the core business: The Livestock Feed Business accounts for 76.6% of the revenue mix, creating a structure in which fluctuations in livestock market conditions and the raw material procurement environment can significantly affect consolidated results.

2. Raw material price and foreign exchange risk: Under a low-margin structure featuring a gross profit margin of 11.5% and an Operating Income Margin of 2.6%, delays in passing on fluctuations in grain and fishmeal prices, foreign exchange rates, and ocean freight costs could rapidly pressure profits.

3. Food Business profitability risk: Despite 12.0% revenue growth, the Food Business’s margin remained at 0.4%, as higher chicken egg prices and increased depreciation expenses for the new plant have prevented revenue growth from translating into profits.

Key Takeaways from the Results

1. The significant increase in profit despite lower revenue resulted from rigorous profitability management through the resolution of price revision gaps and the review of unprofitable sales, with the gross profit margin improving by approximately 1pt year on year. Monitoring raw material prices and price pass-through trends from Q4 onward will be critical to assessing sustainability.

2. While full-year profit progress reached 82.8% for Operating Income and 87.8% for Ordinary Income, both above the standard level, the Revenue progress rate was only 70.4%, indicating a gap between profit and revenue progress.

3. The dividend policy has shifted from a Payout Ratio-based policy to a progressive dividend policy based on a 3% DOE target. The company has indicated its intention to maintain the ¥42 dividend, including the commemorative dividend, in the fiscal year ending March 2027. This is noteworthy as a structural change in shareholder returns.

Theoretical Share Price (For Reference)

Sensitivity: ¥1,514–¥1,603 for ±1% in the Cost of Equity, and ¥1,557–¥1,558 for ω±0.1.

Notes:

• Since Net Income progress against the full-year forecast is 88%, exceeding the standard level of 75%, Forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule in terms of progress tend to exceed their forecasts; adjustments may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end have been used (there is a timing gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document produced by AI through the integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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