NH Foods Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥722.60B
• Net Income: ¥25.65B
• EPS: ¥235.20

Income Statement

Balance Sheet

Cash Flow Statement

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

Nippon Ham Co., Ltd. reported FY2026 Q2 consolidated IFRS results showing steady top-line growth and stronger bottom-line leverage. Revenue rose 5.7% year over year to 7,225.99, supported by pricing and/or volume resilience in protein and processed food categories. Net income increased 29.8% to 231.88, lifting the net profit margin to 3.2% for the period. DuPont analysis indicates ROE of 4.2%, decomposed into a 3.2% net margin, 0.749x asset turnover, and 1.77x financial leverage. The improvement in earnings with modest leverage points to better cost pass-through or mix improvement amid thin structural margins. Profit before tax was 382.73 with an effective tax rate of 23.9%, suggesting no unusual tax swings. Operating cash flow of 223.74 was broadly in line with net income (OCF/NI 0.96x), and free cash flow was positive at 66.30, implying investment discipline despite ongoing capex needs. The balance sheet remains conservative with total assets of 9,651.71, equity of 5,455.38, and an equity ratio of 54.9%. Debt-to-equity at 0.76x (based on total liabilities) indicates moderate leverage while interest-bearing debt was unreported. Working capital intensity remains notable with accounts receivable at 1,421.07 and inventories at 1,425.48, consistent with the meat procurement and processing business model. Liquidity appears sound given cash and equivalents of 715.57 and positive operating cash generation, though current and quick ratios are not calculable due to unreported current liabilities and cash detail. The payout ratio is indicated at 57.7%, and free cash flow coverage of dividends is 0.50x for the period, implying partial reliance on the balance sheet or timing of cash flows to fund shareholder returns. Share repurchases totaled 100.04, pointing to an active capital return stance alongside dividends. EPS (basic) was 235.20 yen, consistent with reported net income and average shares, and book value per share is calculated at 5,606 yen, underscoring solid capitalization. Overall, the company demonstrated margin recovery and cash discipline in a cost-volatile environment, with improved earnings quality relative to the prior year. Data limitations exist for gross profit, operating income, and detailed debt composition, but available metrics support a view of stable fundamentals with selective upside from operational efficiency and price-cost management.

Profitability Analysis

ROE is 4.2%, driven by a 3.2% net margin, 0.749x asset turnover, and 1.77x financial leverage. The net margin expanded alongside a 5.7% revenue increase and a 29.8% net income increase, indicating positive operating leverage and/or improved price-cost spread in protein operations. Profit before tax of 382.73 and an effective tax rate of 23.9% suggest clean below-OP line items with limited distortion from non-operating factors. Gross profit and operating income were unreported, limiting precise margin analysis; however, the overall move in net income versus sales indicates better cost containment or improved product mix. Depreciation and amortization of 203.92 underscores a capital-intensive base; EBITDA is unreported, but D&A magnitude implies non-cash costs are meaningful relative to the profit base. Equity method losses of -5.15 were a small drag, implying limited contribution from affiliates. On efficiency, asset turnover at 0.749x is typical for a half-year period in this sector and reflects steady utilization of asset base. Financial leverage at 1.77x (assets to equity) remains moderate, so ROE improvement is margin- and turnover-driven rather than leverage-driven. Overall profitability quality is acceptable with earnings strengthening at the net level despite missing operating detail.

Growth Assessment

Revenue growth of 5.7% YoY to 7,225.99 appears sustainable given sector pricing dynamics and stable demand for protein and processed foods; volume versus price breakdown is not disclosed. Net income growth of 29.8% outpaced sales, consistent with improving cost pass-through and productivity. The profit before tax level and tax rate indicate underlying growth was not reliant on extraordinary items. D&A of 203.92 suggests ongoing reinvestment to support capacity and efficiency, which should underpin medium-term growth. Affiliate contribution was a small net negative, so growth is predominantly from the consolidated core. With asset turnover at 0.749x and no unusual leverage increase, the earnings uplift looks operational rather than financial. Outlook hinges on maintaining price-cost spread against raw material and logistics volatility; absent evidence of reversal, the run-rate suggests modest margin resilience into 2H. Data constraints (no gross profit, operating income) limit deeper segment/margin diagnostics, but the net metrics trend positively.

Financial Health

Total assets are 9,651.71 and equity 5,455.38, yielding an equity ratio of 54.9%, indicative of a strong capital base. Total liabilities of 4,122.00 result in a debt-to-equity ratio of 0.76x on a broad basis; specific interest-bearing debt is unreported. Liquidity looks adequate with cash and equivalents of 715.57 and OCF of 223.74 in the period. Current and quick ratios are not calculable due to unreported current liabilities and cash composition, though current assets are 4,063.08 with sizeable AR (1,421.07) and inventories (1,425.48). Accounts payable of 1,062.69 provides supplier financing typical for the sector. The capital structure is conservative with moderate leverage and ample equity buffer. No stress is evident in taxes or below-OP items, and no large non-operating losses are indicated. Overall solvency and liquidity appear sound within the limits of disclosed data.

Cash Flow Quality

Operating cash flow of 223.74 is 0.96x net income (231.88), indicating solid earnings-to-cash conversion with limited working capital drag. Free cash flow is positive at 66.30, implying investing cash outflows of roughly 157.44 (close to the reported investing CF), likely dominated by maintenance and selective growth capex; specific capex is unreported. Working capital remains sizable with AR and inventories over 2,800 combined, consistent with the procurement cycle in proteins; changes are not disclosed, but cash conversion appears intact given OCF near net income. Financing cash flow was a small net inflow of 0.64, while share repurchases totaled 100.04, suggesting repurchases were substantially offset by other financing sources or timing effects. Absence of interest expense data precludes interest coverage analysis; however, positive OCF and cash on hand (715.57) mitigate near-term liquidity risk. Overall, cash flow quality is acceptable with positive FCF and near-par OCF/NI, albeit with typical sector working capital intensity.

Dividend Sustainability

The payout ratio is indicated at 57.7% of earnings, which is moderate relative to the sector’s typical range. Free cash flow coverage of dividends is 0.50x for the period, implying partial reliance on the balance sheet or timing of cash flows to fund dividends in 1H. With cash and equivalents of 715.57 and positive OCF, near-term dividend capacity appears manageable, though sustainability improves if FCF strengthens in 2H. Dividends paid and DPS by quarter are unreported, limiting precision on run-rate. Share repurchases of 100.04 represent additional cash returns and may be flexed if FCF tightens. Policy outlook likely favors stable to progressive dividends aligned with earnings, but clearer insight awaits full-year guidance and cash flow cadence.

Risk Assessment

Business Risks:

• Raw material cost volatility in pork, beef, and chicken affecting spreads
• Foreign exchange fluctuations impacting imported inputs and overseas procurement
• Animal disease outbreaks (e.g., avian influenza, ASF) disrupting supply chains
• Price competition in processed meats and deli categories compressing margins
• Logistics and labor cost inflation in Japan affecting SG&A and COGS
• Demand normalization risk post-price hikes potentially pressuring volumes
• Affiliate performance variability given small equity-method loss
• Energy and packaging cost swings impacting profitability

Financial Risks:

• Thin structural margins increase sensitivity to cost shocks
• Dividend FCF coverage at 0.50x in the period raises reliance on balance sheet or 2H cash flow
• Working capital intensity (high AR and inventories) exposes cash flows to cycle/timing effects
• Capex needs (implied by D&A and investing CF) could pressure FCF if earnings soften
• Limited visibility on interest-bearing debt and interest expense due to unreported items

Key Concerns:

• Sustaining price-cost spread if raw material prices inflect
• Inventory management and cash conversion in a volatile procurement environment
• Maintaining ROE improvement without increasing leverage
• Dividend and buyback pacing versus internally generated FCF

Investment Implications

Key Takeaways:

• Top-line growth of 5.7% translated into 29.8% net income growth, evidencing improved operating leverage
• ROE at 4.2% is margin- and turnover-driven, not leverage-driven, indicating quality of improvement
• OCF/NI near 1.0x and positive FCF signal decent earnings quality despite working capital intensity
• Balance sheet strength (equity ratio 54.9%) provides flexibility through cycles
• Dividend payout at 57.7% is moderate, but 0.50x FCF coverage warrants monitoring
• Share repurchases of 100.04 enhance capital return but depend on sustained cash generation

Metrics to Watch:

• Price-cost spread indicators: meat input prices vs. realized selling prices
• Inventory days and AR/AP turnover to gauge cash conversion
• Operating margin and gross margin (when disclosed) for confirmation of mix/pricing gains
• OCF/NI ratio and FCF trajectory in 2H
• Equity multiplier and ROE trend versus capex cycle
• FX (USD/JPY) and energy/packaging cost indices

Relative Positioning: Within Japanese protein and processed food peers, Nippon Ham exhibits mid-range profitability with stronger-than-average balance sheet resilience; earnings momentum is improving, but structural margins remain thin, making sustained price-cost management critical to maintain its relative standing.

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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