ROKKO BUTTER CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥31.00B
• Operating Income: ¥744M
• Net Income: ¥511M
• EPS: ¥26.24

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: Soft quarter with sharp operating profit compression and low capital efficiency despite stable topline. Revenue declined slightly to 310.00 (-1.0% YoY), while operating income fell steeply to 7.44 (-48.6% YoY), and ordinary income slid to 6.37 (-53.4% YoY). Net income was 5.11 (-9.1% YoY), cushioned by non-recurring items inferred between ordinary income and profit before tax. Gross profit was 61.23, implying a gross margin of 19.8%. Operating margin stands at 2.4%, down materially YoY. Using the disclosed YoY rates, we estimate prior Q3 operating margin at roughly 4.63%, implying ~223 bps margin compression. Net margin is 1.65% (5.11/310), versus an estimated prior margin of ~1.79%, a compression of ~14 bps. Non-operating balance was negative (non-op income 1.06 vs non-op expenses 1.86), dragging ordinary income below operating income. The increase from ordinary income (6.37) to profit before tax (8.20) implies roughly 1.83 of net extraordinary gain, suggesting one-time support to bottom-line. Effective tax rate was 31.5%, broadly normal for the company’s tax profile. Liquidity is adequate but not robust (current ratio 130.9%, quick ratio 119.9%), with short-term loans of 70.00 largely offset by cash of 61.80 and strong receivables. Leverage remains conservative (D/E 0.66x) and interest coverage is strong at 34.17x despite weaker EBIT. ROE is low at 1.6%, driven by thin net margins and modest asset turnover; ROIC is also low at 1.6%, well below a 5% warning line. Dividend payout ratio (calculated) is high at 84%, raising sustainability questions given weak earnings momentum and unknown cash flow support. Earnings quality assessment is constrained because operating cash flow is unreported; however, the inferred extraordinary gain suggests a non-recurring lift to PBT. Looking forward, restoring operating margin via cost pass-through and mix improvements is crucial to protect dividends and improve returns on capital.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.6% = Net Profit Margin 1.6% × Asset Turnover 0.607 × Financial Leverage 1.63x. The largest driver of the decline YoY is the net profit margin, given operating income fell 48.6% on a 1.0% revenue decline, indicating significant operating deleverage. Business reason: higher input costs and/or weaker pricing/mix likely compressed operating margin to 2.4% from an estimated ~4.6% a year ago; non-operating balance also deteriorated (expenses > income), pressuring ordinary income. Sustainability: margin compression looks cyclical and potentially reversible with price pass-through and cost control, but recovery depends on input cost trends and channel pricing dynamics; the extraordinary gain (≈1.83) lifting PBT is one-time and not sustainable. Red flags: SG&A detail is unreported, but operating income’s sharp decline versus slight revenue dip implies operating costs rose faster than sales (negative operating leverage). Overall margin quality is weak; operating margin deterioration, negative net non-operating balance, and reliance on extraordinary gains lowered earnings quality.

Growth Assessment

Revenue declined modestly (-1.0% YoY) to 310.00, suggesting stable end-demand but limited pricing/mix tailwinds. Profitability deteriorated significantly: operating income -48.6% YoY to 7.44, ordinary income -53.4% to 6.37, net income -9.1% to 5.11, indicating cost inflation and/or pricing pressure. The gap between ordinary income and PBT implies ~1.83 in extraordinary gains, inflating growth optics at the pre-tax and net levels. Non-operating income ratio is 20.8%, and non-operating expenses exceeded non-operating income, highlighting weaker recurring profit composition. Outlook hinges on gross margin restoration through price pass-through and cost optimization; with current operating margin at 2.4%, even modest improvement would materially lift profit. However, ROIC at 1.6% indicates returns well below cost of capital, and absent margin recovery, growth will likely remain EPS-dilutive. With OCF unreported, growth quality and sustainability are uncertain.

Financial Health

Liquidity: Current ratio 130.9% (below 1.5x benchmark but above 1.0x), quick ratio 119.9% (healthy). No explicit warning threshold breaches (Current Ratio ≥1.0; D/E 0.66x < 2.0). Working capital is 58.76. Maturity profile: short-term loans 70.00 are sizeable versus cash 61.80; however, receivables of 131.03 and overall current assets of 248.90 provide coverage, suggesting manageable maturity mismatch risk. Solvency: Total equity 313.02 vs total liabilities 205.40; leverage is moderate and interest coverage is very strong at 34.17x. Off-balance sheet: Not disclosed; no commitments/guarantees reported in the dataset.

Cash Flow Quality

OCF/Net income cannot be assessed (unreported), so earnings quality conclusions are limited. The presence of an inferred extraordinary gain (~1.83) between ordinary income and PBT indicates non-recurring support, lowering core quality. Non-operating expenses exceeded non-operating income, further suggesting weaker recurring profit structure. Free cash flow and capex are unreported; thus, sustainability of cash support for dividends and potential growth capex cannot be judged. Working capital observations: receivables (131.03) are large relative to 9M revenue (310), implying elevated receivable intensity; without cash flow data, we cannot confirm collection timing or potential buildup. No clear signs of working-capital-driven earnings management can be concluded from the limited data.

Dividend Sustainability

Calculated payout ratio is elevated at 84.0%, above the <60% benchmark for comfort. With ROE at 1.6% and ROIC at 1.6%, earnings capacity is weak, and absent OCF disclosure, cash coverage of dividends is uncertain. Interest coverage is robust (34.17x), and leverage is moderate (D/E 0.66x), which helps balance-sheet capacity, but persistent low profitability would pressure dividend sustainability. With FCF unreported, we cannot confirm FCF coverage; prudence suggests dividends are sensitive to margin recovery in the coming quarters. Policy outlook unknown due to lack of DPS disclosure; stability likely contingent on restoring operating margin toward historical levels.

Risk Assessment

Business Risks:

• Margin compression risk from input cost inflation (dairy fats, cheese curd, packaging) outpacing price pass-through
• Channel/pricing pressure in retail and foodservice, limiting ability to raise prices
• Product mix shifts toward lower-margin SKUs, further diluting operating margin
• Operational leverage: small topline declines causing outsized profit drops

Financial Risks:

• Elevated payout ratio (84%) despite low ROE/ROIC, risking dividend strain
• Short-term debt (70.00) reliance vs. modest cash (61.80), creating refinancing and liquidity management needs
• Receivables intensity potentially high relative to YTD sales; cash conversion risk if collections slow
• Earnings quality sensitivity to non-recurring items (≈1.83 extraordinary gains)

Key Concerns:

• ROIC at 1.6% well below a 5% warning threshold
• Operating margin compressed to 2.4%, down ~223 bps YoY by estimate
• Non-operating expenses exceeding non-operating income, pressuring ordinary income
• Lack of OCF/FCF disclosure limits assessment of cash backing for earnings and dividends

Investment Implications

Key Takeaways:

• Core profitability weakened substantially; operating margin fell to 2.4% with sizable YoY compression
• Bottom-line partially supported by inferred extraordinary gains (~1.83), lowering quality
• Capital efficiency is poor (ROE 1.6%, ROIC 1.6%), below cost of capital
• Balance sheet is sound (D/E 0.66x, interest coverage 34x), providing some resilience
• Dividend payout ratio is high at 84%, making dividends sensitive to margin recovery

Metrics to Watch:

• Gross and operating margin trajectory and price pass-through effectiveness
• Operating cash flow and free cash flow once disclosed
• Receivables turnover/cash conversion cycle and AR days
• Extraordinary items and non-operating balance (sustainability of profit mix)
• Input cost trends (dairy fats, cheese, packaging) and FX impacts on imports
• Short-term debt rollover and liquidity buffers

Relative Positioning: Within Japan’s packaged food/dairy peers, profitability this quarter appears weaker given the sharp operating profit drop on flat revenue; balance sheet strength is better than highly leveraged peers, but return metrics (ROE/ROIC) are notably subpar, leaving the name dependent on margin normalization to improve competitiveness.

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