Nippon Beet Sugar Manufacturing Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥32.98B
• Operating Income: ¥-148M
• Net Income: ¥1.18B
• EPS: ¥95.59

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: Mixed quarter—topline grew double digits but core profitability slipped into a slight operating loss, with bottom-line supported by non-operating and one-time gains. Revenue rose 13.0% YoY to 329.78, while gross profit reached 66.89, implying a gross margin of 20.3%. SG&A was 68.38 (20.7% of sales), exceeding gross profit and resulting in operating income of -1.48 (operating margin around -45 bps). Ordinary income was positive at 2.71, driven by 5.20 in non-operating income—most notably dividend income of 4.47 and interest income of 0.14. Profit before tax jumped to 16.42, implying sizable special/extraordinary gains this quarter (difference versus ordinary income), and net income came in at 11.84 (-79.6% YoY). On margins, gross margin is 20.3% and operating margin is slightly negative; YoY basis-point changes cannot be precisely quantified from the dataset but directionally show operating margin compression given revenue growth alongside an operating loss. Earnings quality, as measured by cash conversion, appears very strong: operating cash flow of 133.37 was 11.26x net income, aided by working-capital inflows and non-cash add-backs (depreciation 10.14). Liquidity is robust with a current ratio of 396.3% and quick ratio of 294.6%, and leverage is conservative with total liabilities/equity at roughly 0.30x. However, ROE remains modest at 1.6%, with ROIC at -0.2%, reflecting low asset turnover (0.344) and thin margins. Interest coverage on an operating basis is weak (-4.0x) due to the operating loss, though absolute interest burden is small (interest expense 0.37) and balance sheet debt is negligible. Non-operating reliance is elevated this quarter: non-operating income of 5.20 and an implied extraordinary gain underpin both ordinary income and bottom line. The combination of negative operating margin, ordinary profit supported by dividends, and a large gap between PBT and ordinary income suggests a significant one-time factor in earnings quality. Free cash flow (proxy OCF minus capex) appears ample at approximately 117.1, supporting financial flexibility even as earnings are depressed. Forward-looking, profitability depends on normalizing operating margins in H2, controlling SG&A, energy/input costs, and avoiding reliance on one-off gains, with sugar price dynamics and harvest/production yields as key external variables.

Profitability Analysis

ROE (1.6%) = Net Profit Margin (3.6%) × Asset Turnover (0.344) × Financial Leverage (1.30x). The largest driver of weak ROE is the slim net margin, as asset turnover is structurally low for this asset-heavy, seasonal business and financial leverage is conservative. Net margin is buoyed by non-operating and likely extraordinary gains (PBT 16.42 vs ordinary income 2.71), while core operating profitability is negative (operating margin ~-0.45%). The business reason for the margin pressure is SG&A (68.38; 20.7% of sales) exceeding gross profit (66.89), likely reflecting fixed-cost rigidity and input cost pressures that have not been fully offset by pricing or mix, plus seasonal timing. This pattern is not sustainably supportive of earnings: dependence on non-operating income (dividends 4.47) and one-time gains cannot consistently cover a structural operating shortfall. Operating leverage is currently unfavorable (revenue +13% but operating income negative), suggesting cost absorption challenges and/or price-cost lag. Concerning trend flags: SG&A as a percentage of sales (20.7%) surpasses gross margin (20.3%), implying no operating expense headroom; without mix/pricing improvement or cost reductions, margins remain vulnerable.

Growth Assessment

Revenue growth of 13.0% YoY to 329.78 indicates healthy demand or pricing, but conversion to profit is weak with operating income at -1.48. Ordinary income of 2.71 is sustained by non-operating income (5.20), especially dividend income (4.47), while PBT of 16.42 indicates sizable extraordinary gains. Profit quality is therefore mixed: headline net income (11.84) depends on non-core items rather than operating earnings. Sustainability hinges on improving core margin via better input cost management (e.g., energy, materials), pricing power, and SG&A discipline. With ROIC at -0.2% and asset turnover 0.344, capital efficiency is below acceptable thresholds; improving throughput and utilizing assets more productively will be essential. Near-term outlook likely relies on seasonality (H2 normalization), inventory management, and stabilization of cost inflation; any reversal in non-operating/one-time contributions would expose earnings fragility. Given high OCF this half, cash-based growth investments and maintenance capex are well funded, but consistency of OCF needs to be proven absent working-capital releases.

Financial Health

Liquidity is strong: current ratio 396.3% and quick ratio 294.6% comfortably exceed benchmarks, with working capital of 327.75. Solvency is conservative: total liabilities of 222.16 vs equity of 736.84 (approx. liabilities/equity 0.30x), and on-balance loans are minimal (short-term 0.24, long-term 0.11). No warnings for Current Ratio <1.0 or D/E >2.0. Maturity mismatch risk is low given sizeable current assets (438.38) versus current liabilities (110.63), and high cash and deposits (106.80). While interest coverage on an operating basis is negative (-4.0x), absolute interest expense is small (0.37), reducing near-term debt-service risk. Off-balance sheet obligations are not disclosed in the dataset; none can be assessed.

Cash Flow Quality

OCF of 133.37 versus net income of 11.84 yields an OCF/NI ratio of 11.26x, indicating strong cash conversion this period. The large positive OCF likely reflects working-capital inflows (inventory and/or receivable reductions/collections) and non-cash charges (depreciation 10.14), typical of seasonality in the sugar business. Using capex of 16.23 as a proxy for investing outflows, free cash flow approximates 117.14, comfortably covering maintenance needs and offering room for shareholder returns. Sustainability is uncertain: the quarter’s net income depends on non-operating and extraordinary items, and OCF may normalize as working capital rebuilds; thus, current cash generation should not be fully extrapolated. No obvious signs of working-capital manipulation are identifiable from available point-in-time balances; however, without detailed CF breakdown (investing CF and changes in WC components), we cannot definitively rule out timing effects.

Dividend Sustainability

Dividend data are largely unreported; however, the calculated payout ratio is shown at 103.6%, implying dividends exceed earnings on a current-period basis. Given FCF proxy of ~117.14, dividends appear covered by cash this half, but coverage by earnings is weak if operating losses persist. With a strong balance sheet and high liquidity, near-term dividend capacity is supported, but long-term sustainability requires restoring positive operating margins and improving ROIC above the 5% warning threshold. Policy outlook cannot be inferred from disclosures; monitoring guidance and payout targets is necessary.

Risk Assessment

Business Risks:

• Commodity/input cost volatility (energy, raw materials) pressuring gross margin
• Sugar price dynamics and competitive imports affecting pricing power
• Agricultural/harvest risk for beet yields and quality (weather, climate variability)
• Inventory valuation risk if market prices soften
• Operational leverage from high fixed costs causing margin sensitivity

Financial Risks:

• Earnings reliance on non-operating (dividends 4.47) and extraordinary gains (PBT >> ordinary income)
• Negative operating margin leading to poor interest coverage (-4.0x) despite low debt
• ROIC at -0.2% indicating subpar capital efficiency
• Potential dividend strain if payout remains high while earnings stay soft (payout ~103.6%)

Key Concerns:

• Core operating loss despite 13% sales growth suggests price-cost/mix imbalance
• Ordinary income supported by market-derived dividend income—exposed to equity market conditions
• Large gap between ordinary income (2.71) and PBT (16.42) points to one-time gains unlikely to recur
• Visibility limited due to unreported items (e.g., detailed SG&A, investing CF, extraordinary items breakdown)

Investment Implications

Key Takeaways:

• Revenue momentum (+13.0% YoY) but negative operating margin (~-0.45%) highlights execution and cost control needs
• Bottom line (NI 11.84) is supported by non-operating and likely one-time gains; core earnings weak
• Cash generation very strong this period (OCF 133.37), yielding ample FCF proxy (~117.1) and liquidity
• Balance sheet strength (current ratio ~396%, low leverage) mitigates near-term financial risk
• Capital efficiency low (ROE 1.6%, ROIC -0.2%, asset turnover 0.344); improvement requires margin recovery and better asset utilization

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio (currently ~20.7%)
• Gross margin versus input cost trends (energy/materials) and pricing actions
• Composition of non-operating income (dividends 4.47) and any extraordinary gains
• Working capital movements (inventories and receivables) to validate OCF sustainability
• ROIC trajectory toward >5% and ultimately >7–8% targets
• Interest coverage on a recurring operating basis

Relative Positioning: Versus domestic food processors, the company exhibits stronger liquidity and lower leverage but weaker core operating profitability this quarter, with higher reliance on non-operating and one-time items; sustained improvement hinges on restoring positive operating margins and enhancing capital efficiency.

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
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