FIRST BAKING CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥21.15B
• Operating Income: ¥191M
• Net Income: ¥1.89B
• EPS: ¥14.89

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Weak profitability despite modest top-line growth, with margins compressing sharply and ROE/ROIC at subdued levels. Revenue rose 4.3% YoY to 211.46, while operating income fell 65.3% YoY to 1.91 and ordinary income declined 66.0% to 1.86. Net income collapsed 94.5% to 1.03, yielding a net margin of 0.5% and EPS of 14.89 JPY. Gross profit was 56.62, implying a gross margin of 26.8%, but operating margin deteriorated to roughly 0.9%. Based on YoY movements, prior-year operating income was about 5.50 and prior-year sales about 202.72, implying prior-year operating margin near 2.7%—a compression of roughly 180 bps. Net margin likely compressed by about 875 bps (from ~9.2% to 0.5%), though this may reflect one-offs last year or this year. The company’s DuPont profile shows ROE of 1.3% driven by a very thin net margin (0.5%), asset turnover of 1.426, and financial leverage of 1.82x. ROIC stands at 3.7%, below the 5% warning threshold, indicating subpar capital efficiency. Ordinary income is primarily driven by the core business, but non-operating items are meaningful, with a non-operating income ratio of 41.7%, exposing earnings to non-core fluctuations. Liquidity is sound (current ratio 232%, quick ratio 224%) and interest coverage is adequate at 11.24x, suggesting near-term solvency is not an issue. Balance sheet shows conservative leverage (D/E 0.82x) and ample working capital of 38.37. Earnings quality cannot be fully assessed due to unreported cash flow data (OCF and FCF unreported). There is an apparent inconsistency between reported profit before tax (19.15) and ordinary/net income; we therefore rely on ordinary income and the given effective tax rate metrics with caution. Forward-looking, the key swing factors will be cost inflation (wheat, energy, logistics), pricing power, and SG&A discipline to restore margins. Near-term focus should be on recovering operating margin above 2% and lifting ROIC toward or above 5%, supported by improved cost pass-through and operational efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (0.5%) × Asset Turnover (1.426) × Financial Leverage (1.82x) ≈ 1.3%. The largest adverse change is in the net profit margin: operating income fell 65.3% despite a 4.3% revenue increase, compressing operating margin from an estimated ~2.7% to ~0.9%. Business drivers likely include higher input costs (wheat/raw materials, energy, logistics) and insufficient price pass-through, plus SG&A rigidity (SG&A ratio ~24.2% of sales) limiting operating leverage. Asset turnover is reasonably stable at 1.43x, reflecting steady sales relative to asset base; leverage is modest at 1.82x and not the key driver. The margin pressure looks largely cyclical/operational rather than structural balance-sheet driven; sustainability depends on the company’s ability to pass through costs and improve efficiency. Watch for signs of negative operating leverage (SG&A growth exceeding revenue growth); with revenue up and OI down, SG&A/COGS inflation likely exceeded pricing gains this quarter.

Growth Assessment

Top-line growth of 4.3% suggests stable demand or moderate price increases. However, cost inflation overshadowed growth, compressing operating profit by 65.3%, indicating price/mix insufficient to offset input and logistics costs. Gross margin at 26.8% is reasonable for bakery, but the step-down in operating margin to ~0.9% indicates SG&A pressure and/or promotional spend. Non-operating items are material (non-operating income ratio 41.7%), which can add volatility to ordinary income absent structural improvement in the core. With ROIC at 3.7%, incremental growth without margin recovery risks value dilution. Outlook hinges on: further price pass-through, product mix shift toward higher-margin SKUs, procurement optimization, and cost controls. If input costs stabilize and pricing sticks, a gradual margin rebound is plausible; absent that, profit growth remains constrained.

Financial Health

Liquidity is solid: current ratio 232.4%, quick ratio 224.0%, and working capital 38.37. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); D/E is 0.82x. Interest coverage is healthy at 11.24x, mitigating near-term refinancing risk. Current assets (67.36) comfortably exceed current liabilities (28.99), and cash (30.14) plus receivables (28.34) cover accounts payable (11.16), indicating low maturity mismatch risk. Noncurrent liabilities (37.73) are moderate relative to equity (81.60). Off-balance sheet obligations are unreported; no specific commitments disclosed in the dataset. Overall solvency appears adequate, but improving profitability is important to maintain coverage buffers.

Cash Flow Quality

Operating cash flow, free cash flow, and capex are unreported, so OCF/NI and FCF coverage cannot be assessed. Given net income of 1.03 and significant margin compression, cash conversion risk should be monitored, especially if working capital swings (receivables, inventories) absorb cash. No evidence of working capital manipulation is observable from the limited data; inventories are low (2.42) relative to sales, and receivables (28.34) are typical for the channel structure. Without OCF disclosure, we cannot validate earnings quality; prioritize tracking OCF/NI (>1.0 benchmark) once available.

Dividend Sustainability

Dividend data (DPS, total dividends, payout ratio) are unreported, preventing a direct sustainability assessment. With ROE at 1.3% and ROIC at 3.7%, internal returns are modest; a conservative payout would be prudent until margins normalize. Free cash flow coverage is unknown due to missing OCF/capex figures. Balance sheet strength (cash 30.14 and low short-term pressure) offers some flexibility, but sustained dividends depend on restoring operating margin and stable OCF.

Risk Assessment

Business Risks:

• Input cost inflation (wheat, oils, energy) outpacing price pass-through, pressuring margins
• Logistics and labor cost increases in Japan (e.g., 2024 logistics reforms) impacting distribution economics
• Customer concentration and pricing pressure from large retailers/convenience chains
• Product mix and promotional intensity diluting margins
• Food safety/recall risk inherent to bakery manufacturing

Financial Risks:

• Low ROIC at 3.7% (<5% warning) risking value dilution if growth continues without margin recovery
• Earnings reliance on non-operating items (non-operating income ratio 41.7%) increasing volatility
• Very thin net margin (0.5%) heightening sensitivity to small revenue or cost changes
• Potential tax rate volatility (reported effective tax rate unusually low at 1.4%)

Key Concerns:

• Sharp operating margin compression (~180 bps YoY) despite sales growth
• Net income down 94.5%, indicating limited buffer against cost shocks
• Data inconsistency in reported profit before tax (19.15) versus ordinary/net income; interpretation requires caution
• Lack of cash flow disclosure limits assessment of earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Top-line growth (+4.3%) offset by severe margin compression; operating margin ~0.9%
• ROE 1.3% and ROIC 3.7% highlight subdued capital efficiency
• Liquidity strong (current ratio 232%) and leverage moderate (D/E 0.82x), reducing near-term balance-sheet risk
• Earnings sensitive to input costs and non-operating items; core profitability needs repair

Metrics to Watch:

• Operating margin trajectory (target >2% near term)
• Gross margin and SG&A-to-sales ratio for operating leverage
• OCF/Net income once disclosed (>1.0 benchmark)
• ROIC progression toward >5%
• Non-operating income/expense mix and sustainability
• Price pass-through vs input cost indices (wheat, energy, logistics)

Relative Positioning: Within Japan’s baked goods sector, the company operates at smaller scale and currently exhibits thinner margins and lower ROIC than larger peers, suggesting higher earnings volatility and greater dependence on disciplined cost control and effective price/mix management to defend profitability.

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