NH Foods Ltd. FY2027 Q1 Earnings Report

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Executive Summary

While Revenue increased 8.7%, quarterly Net Income attributable to owners of the parent decreased 5.6%, as the increase in the effective tax rate and deterioration in equity-method investment gains and losses weighed on bottom-line profit. Revenue was ¥3,849.5B (previous year: ¥3,541.4B, +8.7%), while profit before tax for the quarter was nearly flat at ¥185.2B (previous year: ¥184.2B, +0.6%). Quarterly Net Income attributable to owners of the parent was ¥107.7B (previous year: ¥114.2B, △5.6%). Business segment profit (on a consolidated basis) expanded to ¥194.2B (previous year: ¥162.4B, +19.5%), indicating improved business profitability, primarily in the Meat Business. However, the increase in the effective tax rate from 31.8% to 34.1% and the deterioration in equity-method investment gains and losses from △¥2.6B to △¥6.4B compressed profit between profit before tax and Net Income.

Factors Affecting Performance

【Revenue】The Meat Business Division (68.5% of Revenue composition) led the increase with growth of +11.5%, while the Sports & Entertainment Business Division also recorded strong growth of +14.1%. The Processed Foods Business Division grew by only +3.1%; however, consolidated Revenue increased +8.7% as all three businesses recorded higher Revenue.

【Profit and Loss】Business segment profit increased significantly by +19.5% (¥194.2B). By segment, the Meat Business improved by +20.4% (¥152.6B, margin 5.35%→5.78%), and Sports & Entertainment improved by +29.2% (¥49.1B, margin 36.6%→41.4%). In contrast, the Processed Foods Business declined by △13.9% (¥7.5B, margin 0.81%→0.68%), apparently reflecting delays in passing higher raw material costs on to prices. The consolidated gross margin declined to 17.10% (previous year: 18.57%, △1.47pt), while the SG&A ratio improved to 12.63% (previous year: 13.42%, △0.79pt improvement) as cost efficiency advanced. Profit before tax was nearly flat at +0.6%; however, the increase in the effective tax rate from 31.8% to 34.1% and the deterioration in equity-method investment gains and losses to △¥6.4B resulted in a △5.6% decline in Net Income attributable to owners of the parent. Although profitability at the business level improved, bottom-line profit declined, classifying the results as higher Revenue but lower profit.

Segment Analysis

Following the organizational restructuring in April 2026, the Sports & Entertainment Business Division was newly established, with the former Ballpark Business positioned under it. The Meat Business Division was the company-wide growth driver in both Revenue and profit, with Revenue of ¥2,639.8B (+11.5%), Operating Income of ¥152.6B (+20.4%), and a margin of 5.78% (previous year: 5.35%). The Processed Foods Business Division recorded Revenue of ¥1,096.7B (+3.1%), while Operating Income declined to ¥7.5B (△13.9%), with the margin remaining low at 0.68% (previous year: 0.81%); passing higher raw material costs on to prices may be an ongoing challenge. The Sports & Entertainment Business Division recorded Revenue of ¥118.5B (+14.1%), Operating Income of ¥49.1B (+29.2%), and a margin of 41.4% (previous year: 36.6%). It remains highly profitable and on an expansionary trend, contributing to an increase in the company-wide profit margin despite its small scale.

Key Financial Indicators

【Profitability】The consolidated gross margin declined to 17.10% (previous year: 18.57%, △1.47pt), while the SG&A ratio improved to 12.63% (previous year: 13.42%, △0.79pt), and the business segment profit margin rose to 5.05% (previous year: 4.59%, +0.46pt). The Net Income margin attributable to owners of the parent was 2.80% (previous year: 3.22%, △0.42pt), primarily due to the increase in the effective tax rate (31.8%→34.1%).【Cash Quality】Operating Cash Flow was only ¥19.6B, and its ratio to Net Income attributable to owners of the parent (¥107.7B) was approximately 0.18x, a significant decline from OCF of ¥217.8B in the same period of the previous year.【Investment Efficiency】ROE was 2.2% (based on quarterly profit, not annualized).【Financial Soundness】The Equity Ratio was 52.4%, down 1.4pt from 53.8% at the end of the previous fiscal year, but remained at a high level. Current assets of ¥4,623.3B versus current liabilities of ¥2,709.6B resulted in a current ratio of approximately 1.71x, a sound level.

Cash Flow Analysis

Operating Cash Flow was ¥19.6B, down 91.0% from ¥217.8B in the same period of the previous year. Despite profit before tax being nearly flat, substantial cash outflows from increases in inventories (△¥206.4B) and trade receivables (△¥23.0B) had a significant impact, while an increase in trade payables (+¥82.2B) partially offset the outflows. Investing Cash Flow was △¥105.9B, mainly due to the acquisition of property, plant and equipment (△¥105.1B), resulting in negative free cash flow (OCF + investing CF) of △¥86.3B. Financing Cash Flow was △¥27.7B, with the funding needs for dividend payments (△¥151.7B) and share repurchases (△¥100.0B) being covered by an increase in short-term borrowings (+¥258.9B). As a result, cash and cash equivalents declined from ¥68.7B at the beginning of the period to ¥58.3B. Reducing inventories and trade receivables will be key to restoring future cash-generation capacity.

Quality of Earnings

Although profit improved at the segment level during the period, the increase in the effective tax rate (31.8%→34.1%) and deterioration in equity-method investment gains and losses (△¥2.6B→△¥6.4B) constrained growth in bottom-line profit. Non-core factors related to the tax burden and equity-method investments affected the quality of Net Income. Comprehensive income was ¥146.5B (including ¥131.8B attributable to owners of the parent), exceeding quarterly profit of ¥122.1B (¥107.7B attributable to owners of the parent). This difference was primarily attributable to foreign currency translation adjustments for foreign operations, which shifted from △¥23.1B in the same period of the previous year to +¥25.3B in the current period. This was a foreign-exchange valuation factor and does not reflect the recurring earning power of the business, which should be noted. Non-operating income and expenses were small at approximately 1% of Revenue, and core profit was generally dependent on business earnings. However, the fact that Operating Cash Flow was substantially below Net Income requires monitoring from the perspective of the cash conversion of current-period profit (accruals).

Earnings Forecast and Guidance

The Q1 progress rate was 25.7% for Revenue against the full-year forecast of ¥15,000B, and 28.4% for Net Income attributable to owners of the parent against the full-year forecast of ¥380B (EPS progress was also 114.46 yen/403.68 yen, or 28.4%). Performance is therefore tracking slightly above the general quarterly progress benchmark of 25%. No revisions were made to the earnings forecast or dividend forecast during the quarter, and the full-year plan remains unchanged.

Shareholder Returns

The annual dividend forecast is 180 yen (+20 yen from the previous fiscal year’s actual dividend of 160 yen), implying a Payout Ratio of approximately 44.6% against forecast EPS of 403.68 yen. During Q1, the company repurchased ¥100.0B of treasury shares and also cancelled ¥299.9B of treasury shares, indicating a commitment to improving capital efficiency. The funding needs represented by quarterly dividend payments of ¥150.6B and share repurchases of ¥100.0B substantially exceeded OCF of ¥19.6B, with the shortfall covered by an increase in short-term borrowings. This requires monitoring from the perspective of the sustainability of the funding sources for shareholder returns.

Risk Factors

1. Rising raw material costs and declining profitability in the Processed Foods Business: The consolidated gross margin declined to 17.10% (previous year: 18.57%, △1.47pt), while the Operating Income margin of the Processed Foods Business Division also declined to 0.68% (previous year: 0.81%). Delays in passing higher costs on to prices may be weighing on profit margins.

2. Increase in the effective tax rate and deterioration in equity-method investment gains and losses: The effective tax rate rose to 34.1% (previous year: 31.8%, +2.3pt), while equity-method investment gains and losses deteriorated to △¥6.4B (previous year: △¥2.6B). Despite profit before tax being nearly flat (+0.6%), Net Income attributable to owners of the parent declined by △5.6%, with these two factors being the primary causes.

3. Accumulation of working capital and decline in cash-generation capacity: Inventories increased +13.7% from the end of the previous fiscal year (¥1,744.7B), while OCF was limited to ¥19.6B, down △91.0% year on year. Free cash flow was negative at △¥86.3B, and short-term interest-bearing liabilities increased +51.6% from the end of the previous fiscal year (¥727.1B), supplementing funding needs.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Net Income margin is slightly below the industry median, indicating that the impact of the increased tax burden is also observable on a relative basis within the industry.

Growth and Capital Efficiency

The Revenue growth rate exceeded the industry median, with growth in the Meat and Sports-related Businesses contributing to a relatively high Revenue growth rate within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. While improved profitability in the Meat and Sports-related Businesses is driving overall performance, the decline in margins in the Processed Foods Business remains a structural issue. The profit margin in the Meat Business improved from 5.35% to 5.78%, and that of the Sports & Entertainment Business improved from 36.6% to 41.4%, whereas the Processed Foods Business declined from 0.81% to 0.68%, widening the profitability gap between segments.

2. Profit before tax was nearly flat, but Net Income attributable to owners of the parent declined due to the increase in the effective tax rate (31.8%→34.1%) and deterioration in equity-method investment gains and losses. Whether the improvement in profitability at the business level will be reflected in bottom-line profit will depend on the tax burden and trends at equity-method investees, which remain areas to monitor.

3. Operating Cash Flow declined 91.0% year on year to ¥19.6B, primarily due to an increase in inventories. Capital policies, including share repurchases and cancellations, are being actively pursued; however, funding for shareholder returns is being supplemented by short-term borrowings. The recovery of cash-generation capacity as inventories and trade receivables normalize will be a key monitoring point going forward.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: 5,269 yen–5,575 yen at ±1% for the cost of equity, and 5,410 yen–5,425 yen at ±0.1 for ω.

Notes:

• As 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).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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