MORINAGA MILK INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥293.33B
• Operating Income: ¥20.80B
• Net Income: ¥9.63B
• EPS: ¥176.97

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

Morinaga Milk Industry (2264) reported FY2026 Q2 consolidated results showing resilient topline and strong profit leverage despite muted revenue growth. Revenue rose 0.9% YoY to ¥293.3bn, while operating income increased 18.9% YoY to ¥20.8bn, indicating meaningful margin expansion. Gross profit reached ¥70.6bn, translating to a gross margin of 24.1%, which supports the improved operating margin of 7.1% for the first half. Ordinary income was ¥21.95bn and net income surged 50.8% YoY to ¥14.64bn, lifting the net margin to 4.99%. DuPont-calculated ROE stands at 5.34%, driven by a 4.99% net margin, 0.53x asset turnover, and 2.02x financial leverage. The improvement in profitability suggests successful pricing discipline and cost controls, likely aided by easing input pressures and mix improvements. Interest expense of ¥0.76bn is well-covered, with an interest coverage ratio of 27.3x, indicating ample buffer from operating earnings. The balance sheet shows total assets of ¥553.4bn and equity of ¥274.0bn, implying moderate leverage (assets/equity 2.02x) and a debt-to-equity ratio of 0.91x per the provided metrics. Liquidity is adequate with a current ratio of 116% and a quick ratio of 81%, supported by ¥27.96bn in working capital and inventory of ¥60.44bn. While the effective tax rate is shown as 0.0% in the provided metrics, a simple derivation from income tax expense (¥5.22bn) suggests a typical mid-20% range for H1 (approx. 26% vs. an implied pre-tax proxy), acknowledging potential differences between ordinary income and pre-tax profit lines. Cash flow statements were not disclosed (zeros indicate unreported), limiting assessment of cash conversion and free cash flow coverage. Dividend data are also not disclosed in this dataset, so payout and policy triangulation are not possible here. Overall, the company delivered stronger profitability on modest sales growth, improving ROE and maintaining balanced solvency metrics. The sustainability of margin gains will hinge on price elasticity, input cost trajectories (raw milk, commodities), and ongoing efficiency initiatives. Inventory levels and working capital management will be important to safeguard cash generation in the absence of reported cash flow figures. Given the half-year period, some ratios (e.g., asset turnover) may not be directly comparable to full-year norms. Data limitations around CF and dividends are noted; analysis here focuses on disclosed non-zero data.

Profitability Analysis

ROE_decomposition: ROE 5.34% = Net margin 4.99% × Asset turnover 0.530 × Financial leverage 2.02 (DuPont). margin_quality: Gross margin 24.1% (¥70.6bn/¥293.3bn) indicates healthy value-add despite input cost pressures. Operating margin improved to 7.1% (¥20.8bn/¥293.3bn), outpacing revenue growth (+18.9% OP vs. +0.9% sales), suggesting pricing/mix and cost efficiency. Net margin at 4.99% reflects lower non-operating drag and manageable tax burden. operating_leverage: Revenue grew 0.9% YoY while operating income grew 18.9% YoY, evidencing positive operating leverage. Interest burden is light (¥0.76bn), with 27.3x coverage from operating income, preserving earnings passthrough to the bottom line.

Growth Assessment

revenue_sustainability: Topline growth of +0.9% YoY is modest, consistent with mature domestic dairy categories and potentially offset by pricing normalization; stability suggests resilient demand and/or effective price retention. profit_quality: Outsized profit growth versus sales implies improved cost absorption and mix; ordinary income (¥21.95bn) modestly exceeds operating income, indicating limited non-operating drag. Estimated tax burden appears normal for Japan, supporting earnings quality. outlook: Near-term growth likely hinges on continued pricing discipline, product mix upgrades (functional dairy, desserts, and overseas), and cost normalization in inputs. Maintaining gross margin near mid-20% and OPM at ~7% will be key to sustain profit growth on flat-to-modest sales.

Financial Health

liquidity: Current ratio 116.4% and quick ratio 80.9% indicate adequate short-term coverage. Working capital totals ¥27.96bn, with inventories at ¥60.44bn; careful inventory turnover will support liquidity. solvency: Assets ¥553.38bn vs. equity ¥274.05bn implies leverage of 2.02x (assets/equity). Debt-to-equity is cited at 0.91x, consistent with moderate leverage for the sector. capital_structure: Total liabilities ¥249.32bn against equity ¥274.05bn indicates a balanced structure. Interest expense of ¥0.76bn is small relative to operating income, keeping financial risk contained.

Cash Flow Quality

earnings_quality: Cash flow data are unreported in this dataset (zeros indicate non-disclosure), so OCF/NI and FCF cannot be evaluated directly. Earnings appear supported by normal tax expense and limited non-operating items, suggesting reasonable quality from an accruals standpoint. FCF_analysis: Free cash flow is not disclosed. Without OCF and capex detail, FCF coverage of dividends cannot be assessed. Working capital is positive, but inventory levels require monitoring for cash conversion risk. working_capital: Current assets ¥198.07bn vs. current liabilities ¥170.11bn. Inventory of ¥60.44bn is a key component; maintaining turnover will be crucial to preserve cash conversion in H2.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed in this dataset (reported as 0.00 placeholders). With net income of ¥14.64bn and moderate leverage, the capacity for dividends appears plausible, but quantification is not possible here. FCF_coverage: Unassessable due to unreported OCF/FCF. No conclusion on coverage can be drawn from the provided data. policy_outlook: Absent disclosed DPS or guidance, inferential assessment is limited. Future dividends would depend on sustained operating cash flow, capex needs, and balance-sheet discipline.

Risk Assessment

Business Risks:

• Raw milk and dairy input price volatility affecting gross margins
• Commodity and energy cost fluctuations impacting manufacturing costs
• Price elasticity and competitive pricing pressure from peers and private labels
• Channel mix shifts (CVS/supermarket/e-commerce) influencing promotions and margins
• Product quality and recall risk in chilled and infant nutrition categories
• Demographic headwinds in Japan affecting volume growth
• Weather seasonality impacting ice cream/dessert demand
• Regulatory and food safety compliance across domestic and overseas operations
• FX exposure on overseas businesses and imported inputs

Financial Risks:

• Moderate leverage (D/E ~0.91x) raising sensitivity to interest rates over time
• Inventory management risk potentially tying up cash and affecting liquidity
• Capex requirements for plant/automation potentially pressuring FCF in certain years
• Potential pension/retirement benefit obligations (common in Japan) affecting equity
• Working capital swings impacting cash conversion in H2

Key Concerns:

• Sustainability of margin gains if input costs re-accelerate
• Ability to retain price increases without sacrificing volumes
• Cash generation visibility limited due to undisclosed cash flow figures
• Inventory levels relative to demand normalization

Investment Implications

Key Takeaways:

• Strong operating leverage: OP +18.9% YoY on +0.9% sales indicates improved efficiency and pricing power
• Margins improved to GM 24.1% and OPM ~7.1%, lifting net margin to 4.99%
• ROE at 5.34% supported by better margins and moderate leverage (2.02x)
• Interest coverage robust at 27.3x, signaling low near-term financial strain
• Liquidity adequate with current ratio 116% and quick ratio 81%, backed by ¥27.96bn working capital
• Cash flow and dividend data not disclosed; conclusions on FCF and payouts are constrained

Metrics to Watch:

• Gross and operating margin trends vs. input cost trajectory (milk, energy, packaging)
• Price realization and mix improvement vs. volume elasticity
• Inventory turnover and days on hand to gauge cash conversion
• Ordinary income vs. operating income gap and non-operating balance
• Effective tax rate normalization in H2 and full-year
• Asset turnover progression into H2 (seasonality-adjusted)

Relative Positioning: Within Japan dairy peers, Morinaga Milk exhibits mid-20% gross margins and mid-single-digit ROE, with moderate leverage and strong interest coverage; profitability trends appear improving versus a relatively flat topline, positioning it competitively if margin discipline is maintained.

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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