Meiji Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥574.88B
• Operating Income: ¥40.94B
• Net Income: ¥24.65B
• EPS: ¥79.27

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: Meiji Holdings’ FY2026 Q2 delivered resilient topline growth but weaker profitability and poor cash flow conversion, resulting in lower earnings quality for the half. Revenue grew 1.0% YoY to 5,748.85, supported by stable demand and likely pricing carryover, but operating income fell 7.8% to 409.42 as cost pressures outpaced SG&A efficiencies. Ordinary income declined 4.0% to 416.26, with limited support from non-operating income of 26.65. Net income dropped 20.1% to 214.77, pulling the net margin down to 3.7%. Operating margin compressed to roughly 7.1% from about 7.8% last year, a contraction of about 68 bps. The net margin contracted by approximately 103 bps versus the prior-year period. Gross margin printed at 30.4%, but the gap between gross and operating margins narrowed given higher SG&A of 1,339.05. Effective tax rate remained elevated at 38.2%, amplifying the drop from ordinary income to net income. Earnings quality was weak: operating cash flow was -94.60 despite net income of 214.77, yielding an OCF/NI ratio of -0.44x. With capital expenditures of -335.21, implied free cash flow was approximately -429.81, leading to financing inflows of 376.06 to bridge funding needs. Balance sheet strength remains solid with a current ratio of 166.5%, quick ratio of 125.7%, and very strong interest coverage of 135x. However, capital efficiency softened: ROE was 2.7% and ROIC was 3.2%, well below the typical 7–8% target for branded food companies. The payout ratio of 131.4% appears stretched relative to earnings and negative implied FCF, posing medium-term dividend strain if cash conversion does not improve. Near-term, results suggest continued cost inflation and tax burden pressure, with limited help from non-operating items. Forward-looking, restoring operating margin via pricing optimization, mix, and cost controls, and normalizing working capital to lift OCF will be critical to stabilize earnings quality and dividend capacity.

Profitability Analysis

• ROE decomposition (DuPont): ROE 2.7% = Net Profit Margin 3.7% × Asset Turnover 0.466 × Financial Leverage 1.55x.
• Component changes: The margin component deteriorated the most (net margin down ~103 bps YoY), while leverage stayed conservative and asset turnover was steady at 0.466.
• Business drivers: Input cost inflation (dairy, cocoa, sugar, packaging, utilities) and continued SG&A spend pressured operating margin (-7.8% YoY OI) despite modest revenue growth (+1.0%). A high effective tax rate (38.2%) further eroded net margin.
• Sustainability: Cost inflation may moderate but remains uncertain; pricing/mix actions can gradually support margins, yet the step-up in tax burden looks sticky near-term. Therefore, improvement is possible but depends on cost relief and disciplined SG&A.
• Operating leverage: Revenue growth was positive but insufficient to cover higher costs, indicating negative operating leverage this half.
• Flags: SG&A growth vs revenue cannot be precisely compared given no YoY SG&A disclosure, but the decline in OI alongside revenue growth implies cost growth > revenue growth, pressuring profitability.

Growth Assessment

Revenue grew 1.0% YoY to 5,748.85, indicating stable demand and likely pricing carryover. Operating income declined 7.8% and ordinary income fell 4.0%, signaling that cost pressures persisted. Net income dropped 20.1%, reflecting both operating pressure and a high tax rate. Gross margin at 30.4% is healthy for the category but below the level needed to expand OI in the face of cost inflation. Non-operating income (26.65) offered limited cushion; interest income (4.09) and dividends (5.40) were modest relative to OI. EBITDA of 679.78 (11.8% margin) suggests underlying cash earnings capacity, but negative OCF indicates working capital or timing headwinds. Outlook: Revenue should remain stable to slightly positive on pricing and brand strength, but profitability recovery hinges on cost normalization, procurement savings, and mix improvement in high-margin SKUs. Watch for further pricing rounds, hedging benefits (cocoa, dairy), and factory efficiency gains to re-expand margins in 2H.

Financial Health

Liquidity is strong: current ratio 166.5% and quick ratio 125.7% exceed benchmarks; no warning on Current Ratio (<1.0) or leverage. Solvency is conservative with D/E 0.55x and very high interest coverage of 135x; long-term loans 318.36 and short-term loans 325.89 are manageable relative to equity of 7,938.67. Maturity profile risk appears contained as current assets (5,748.85) comfortably exceed current liabilities (3,452.13); cash (698.98) plus receivables (2,074.22) underpin near-term obligations including accounts payable (1,056.59) and ST loans (325.89). No specific off-balance sheet commitments were disclosed in the data provided.

Cash Flow Quality

• OCF/Net Income is -0.44x (<0.8), signaling a material earnings quality issue this half.
• Implied FCF ≈ -429.81 (OCF -94.60 minus Capex -335.21), indicating that dividends and capex are not covered by internal cash generation in the period.
• Drivers: While EBITDA is solid (679.78), working capital outflows or timing effects likely drove OCF negative; the balance sheet shows sizable receivables (2,074.22) and inventories (1,408.51), but YoY deltas are undisclosed. No apparent signs of aggressive working capital release; rather, cash conversion lagged earnings.
• Sustainability: Cash conversion should improve if inventory and receivable days normalize in 2H; otherwise, reliance on financing (376.06 inflow) may persist to fund capex and shareholder returns.

Dividend Sustainability

The calculated payout ratio of 131.4% is elevated versus typical sustainability thresholds (<60%). With implied FCF at approximately -429.81, coverage of dividends from free cash flow is weak this half. Balance sheet strength and financing inflows can temporarily support distributions, but sustained negative cash conversion would pressure the dividend policy. Unless OCF normalizes and capex moderates or yields higher returns, maintaining a >100% payout would be difficult over time. Policy outlook: near-term stability likely, but medium-term prudence suggests aligning payouts with restored cash earnings and ROIC improvement.

Risk Assessment

Business Risks:

• Input cost inflation (dairy, cocoa, sugar, packaging, energy) compressing gross and operating margins
• Pricing and mix elasticity risk potentially limiting full cost pass-through
• High effective tax rate (38.2%) dampening net profit recovery
• Execution risk on cost reduction and factory efficiency programs

Financial Risks:

• Weak cash conversion (OCF/NI -0.44x) leading to reliance on financing to fund capex and dividends
• Capital efficiency risk with ROIC at 3.2% (<5% warning) indicating low returns on invested capital
• Potential working capital build (receivables/inventory) prolonging negative OCF if not normalized

Key Concerns:

• Operating margin compression (~68 bps YoY) despite revenue growth
• Net margin deterioration (~103 bps YoY) and 20.1% NI decline
• Payout ratio at 131.4% while implied FCF is negative
• Limited non-operating cushion to offset operating headwinds

Investment Implications

Key Takeaways:

• Topline resilience (+1.0% YoY) but margin compression drove a 7.8% decline in operating income
• Earnings quality weak: OCF negative vs positive net income (OCF/NI -0.44x)
• ROE 2.7% and ROIC 3.2% highlight subdued capital efficiency
• Balance sheet robust (CR 166.5%, interest coverage 135x), mitigating near-term liquidity risk
• Dividend coverage strained near-term given >100% payout and negative implied FCF

Metrics to Watch:

• Operating margin trajectory and SG&A discipline
• OCF recovery and working capital turns (receivable and inventory days)
• Input cost trends (cocoa, dairy, sugar, packaging, utilities) and pricing actions
• Capex intensity versus return (ROIC uplift toward >7%)
• Effective tax rate normalization and any structural tax items

Relative Positioning: Within Japanese branded food peers, Meiji’s balance sheet strength and brand equity are positives, but current-period cash conversion and capital efficiency lag best-in-class; margin recovery and ROIC improvement are needed to close the gap.

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