Prima Meat Packers,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company recorded higher revenue but lower profits, as rising raw material costs and deteriorating profitability in the Meat Business pressured Operating Income and Ordinary Income. Revenue increased to ¥1,224.2B (+5.7% YoY), while Operating Income declined modestly to ¥24.8B (-2.0% YoY) and Ordinary Income to ¥26.9B (-2.2% YoY). Net Income attributable to owners of the parent was ¥17.3B (-3.3% YoY), which differs from consolidated Net Income of ¥18.6B (+7.3% YoY), which includes the portion attributable to non-controlling interests. The primary drivers of the revenue increase were higher sales in both the Processed Foods and Meat Businesses. However, price pass-through of higher costs did not keep pace, resulting in a lower gross margin than in the previous year and contributing to the decline in profit.

Factors Affecting Performance

【Revenue】Both the Processed Foods Business segment (external revenue of ¥796.2B, composition ratio of 65.0%, +3.7% YoY) and the Meat Business segment (¥477.1B, composition ratio of 34.7%, +8.4% YoY) secured revenue growth. By product, Meat recorded the highest growth rate at ¥463.4B (+11.3% YoY), followed by Ham and Sausages at ¥322.6B (+3.8% YoY) and Processed Foods at ¥430.7B (+1.5% YoY). Higher volume and unit prices in the Meat Business drove the overall increase in revenue.

【Profit and Loss】Cost of sales increased to ¥1,088.7B (+6.2% YoY), outpacing revenue growth (+5.7%), and the gross margin declined to 11.1% from 11.4% in the previous year. Selling, general and administrative expenses increased to ¥110.7B (+3.2% YoY), but improved as a percentage of revenue to 9.0% from 9.3% in the previous year. Although this partially offset the deterioration in the gross margin, it was insufficient to fully absorb it, resulting in Operating Income of ¥24.8B (-2.0% YoY). By segment, the Processed Foods Business secured higher Operating Income of ¥22.6B (+3.1% YoY), while the Meat Business declined to ¥3.6B (-13.3% YoY), with its margin falling to 0.8% from 0.9% in the previous year. Ordinary Income was ¥26.9B (-2.2% YoY), as non-operating income and expenses were broadly in line with the previous year. Extraordinary income and expenses amounted to a modest net gain of +¥0.28B, representing a minor temporary factor. After deducting income taxes and other taxes of ¥8.6B (effective tax rate of 31.6%) and Net Income attributable to non-controlling interests of ¥1.3B from pre-tax income of ¥27.2B, Net Income attributable to owners of the parent was ¥17.3B (-3.3% YoY). The Company therefore reported higher revenue but lower profits.

Segment Analysis

The Processed Foods Business segment maintained approximately the same level as the previous year, with revenue of ¥796.2B (+3.7% YoY), Operating Income of ¥22.6B (+3.1% YoY), and a margin of 2.8%. It remains the earnings pillar, generating approximately 86% of total Company Operating Income (segment total). Although the Meat Business segment continued to post revenue growth, with revenue of ¥477.1B (+8.4% YoY), Operating Income decreased to ¥3.6B (-13.3% YoY), and its margin declined to 0.8% from 0.9% in the previous year. This suggests that price pass-through of rising raw material prices has been slower in the Meat Business. From the perspective of the quality of revenue growth, the Company’s high dependence on the Processed Foods Business is apparent. The Other segment, although small, demonstrated high profitability, with revenue of ¥3.7B (+15.0% YoY), Operating Income of ¥0.6B (+7.7% YoY), and a margin of 15.2%.

Key Financial Indicators

【Profitability】The Operating Margin declined to 2.0% from 2.2% in the previous year, while the gross margin also contracted to 11.1% from 11.4%. ROE remained low at 1.4% based on quarterly results.【Cash Quality】Operating Cash Flow (OCF) was ¥8.7B, below Net Income attributable to owners of the parent of ¥17.3B, indicating a gradual pace of cash conversion.【Investment Efficiency】Capital expenditures of ¥23.0B were below depreciation and amortization expenses of ¥26.6B, suggesting an investment stance focused primarily on maintaining and renewing existing facilities.【Financial Soundness】The Equity Ratio was 54.6%, the current ratio was 120.7%, and the quick ratio was 89.8%. Short-term payment capacity is secured, although the quick ratio remains slightly below 100%.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥8.7B, an increase of +24.8% from ¥7.0B in the previous year. However, it remained below Net Income attributable to owners of the parent of ¥17.3B. Increases in accounts receivable of ¥11.2B and inventories of ¥7.9B, as well as income tax payments of ¥29.1B, delayed cash conversion. Meanwhile, the ¥15.8B increase in accounts payable partially eased the working capital burden. Investing Cash Flow was +¥2.3B, representing a net inflow as proceeds from the sale of investment securities of ¥51.4B exceeded capital expenditures of ¥23.0B. Financing Cash Flow was -¥18.0B, primarily due to dividend payments of ¥19.6B and repayments of long-term borrowings of ¥16.7B. Short-term borrowings, however, increased significantly from ¥1.6B at the end of the previous year to ¥21.0B in the current period, suggesting that they may have been used as a temporary source of working capital funding. Free cash flow was positive at ¥11.0B, but this was not necessarily sufficient relative to dividend payments of ¥19.6B. The composition of cash flows therefore warrants continued monitoring.

Quality of Earnings

The gap between Ordinary Income of ¥26.9B and Net Income attributable to owners of the parent of ¥17.3B was primarily attributable to income taxes and other taxes of ¥8.6B (effective tax rate of 31.6%) and Net Income attributable to non-controlling interests of ¥1.3B. Extraordinary income and expenses amounted to a modest net gain of +¥0.28B, indicating a limited impact from temporary factors. Non-operating income of ¥2.7B consisted mainly of other non-operating income of ¥2.1B and is viewed as having a recurring nature. Comprehensive income was ¥17.1B, slightly below Net Income attributable to owners of the parent of ¥17.3B, with the valuation difference on securities of -¥1.9B acting as a negative factor. The fact that Operating Cash Flow was below Net Income indicates an expansion in accruals due to increases in accounts receivable and inventories. From a quality-of-earnings perspective, consistency with cash flow requires attention.

Earnings Forecast and Guidance

Progress against the full-year forecast was 24.5% for Revenue (¥1,224.2B/¥5,000.0B), 22.5% for Operating Income (¥24.8B/¥110.0B), 22.4% for Ordinary Income (¥26.9B/¥120.0B), and 23.1% for Net Income (¥17.3B/¥75.0B, attributable to owners of the parent). Compared with the quarterly benchmark of 25%, Operating Income and Ordinary Income were slightly below target. However, the full-year forecast calls for Operating Income to increase +20.5% YoY and Ordinary Income to increase +7.3% YoY, premised on an improvement in profitability toward the second half of the fiscal year. There were no revisions to the earnings forecast or dividend forecast during the current quarter, and the existing full-year outlook was maintained.

Shareholder Returns

The full-year dividend forecast is ¥80 per share, and the Payout Ratio calculated from the full-year forecast EPS of ¥149.22 is approximately 53.6%. Dividend payments during the current quarter were ¥19.6B, almost unchanged from ¥19.6B in the previous year. No share buybacks were identified, and the policy of focusing shareholder returns primarily on dividends continues. Free cash flow of ¥11.0B during the current quarter was below dividend payments of ¥19.6B. The trends in Operating Cash Flow and the investment balance during the second half of the fiscal year will therefore be important from the perspective of dividend funding.

Risk Factors

1. Margin pressure from rising raw material costs: The gross margin declined to 11.1% from 11.4% in the previous year, while the Operating Margin of the Meat Business remained at 0.8% versus 0.9% in the previous year. Progress in price pass-through will be key to restoring profitability.

2. Delayed cash conversion: Operating Cash Flow of ¥8.7B was below Net Income attributable to owners of the parent of ¥17.3B, while increases in accounts receivable of +¥11.2B and inventories of +¥7.9B delayed cash conversion.

3. Increased reliance on short-term funding: Short-term borrowings increased substantially from ¥1.6B at the end of the previous year to ¥21.0B in the current period, indicating that increased working capital requirements have manifested as greater reliance on short-term borrowings.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (food_beverage)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was slightly above the industry median, indicating that top-line growth was at a standard level within the industry.

Source: Compiled by the Company

Key Points from the Results

1. The Processed Foods Business segment maintained an Operating Margin of 2.8% and generated the majority of Company-wide profit, while the Meat Business segment continued to see its margin decline to 0.8% despite higher revenue. The disparity in profit structures between the segments is therefore widening.

2. Operating Cash Flow has remained below Net Income attributable to owners of the parent. The expansion of working capital, reflected in increases in accounts receivable and inventories, has delayed the conversion of profit into cash and is a key point to monitor when assessing future cash flow trends.

3. The sharp increase in short-term borrowings appears to be part of the response to working capital requirements. Together with the widening negative Financing Cash Flow, this should continue to be monitored as a change in the funding structure.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It does not constitute a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥2,276–¥2,405 at ±1% for the Cost of Equity, and ¥2,331–¥2,344 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the Cost of Equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future stock price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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