FUKUTOME MEAT PACKERS,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.79B
• Operating Income: ¥-404M
• Net Income: ¥-221M
• EPS: ¥-66.35

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: Soft quarter with operating loss, pressured margins, and acute liquidity/leverage stress despite modest non-operating support. Revenue declined 4.3% YoY to 117.86, with gross profit of 17.12 and SG&A of 21.17 resulting in an operating loss of -4.04. Gross margin stood at 14.5%, while the operating margin deteriorated to -3.4% and ordinary margin to -3.4%, highlighting cost pressure and insufficient price pass-through. Non-operating items were net +0.08 (income 0.56, expenses 0.48), partially offsetting the operating loss; extraordinary factors appear to have lifted profit before tax to -2.08 from ordinary income of -3.97 (implied net extraordinary gain of about 1.9). Net income was -2.21 (EPS -66.35 yen), and total comprehensive income improved to -0.11 on positive OCI. EBITDA was negative at -1.87, underscoring weak underlying earnings power. SG&A at 21.17 exceeded gross profit of 17.12, a key structural issue for profitability. Cash generation was negative with operating cash flow of -3.90; financing cash inflow of 1.00 implies reliance on borrowings to bridge cash shortfalls and capex. Liquidity is strained: current ratio 0.66 and quick ratio 0.53 signal high short-term refinancing risk, with short-term loans of 51.78 towering over cash (14.09). Leverage is elevated with D/E 5.73x and equity only 18.36 against total assets of 123.55; interest coverage is deeply negative at -10.36x. DuPont shows ROE at -12.0% driven by negative net margin (-1.9%) magnified by high leverage (6.73x assets/equity), with asset turnover at 0.954. ROIC of -6.5% indicates value destruction and sub-par returns versus the 7–8% target benchmark. While OCF/NI prints 1.76x, both figures are negative, so earnings quality is not reassuring. Forward-looking, the company must deliver gross margin recovery via price actions, product mix improvement, and cost control, and de-risk its balance sheet by reducing short-term debt and improving working capital to avoid refinancing strain. Near-term catalysts hinge on input cost normalization and successful price pass-through; absent these, losses and liquidity stress could persist.

Profitability Analysis

ROE decomposition (DuPont): ROE (-12.0%) = Net Profit Margin (-1.9%) × Asset Turnover (0.954) × Financial Leverage (6.73x). The largest driver of the deterioration is the net profit margin turning negative, as SG&A (21.17) exceeded gross profit (17.12), pushing operating margin to -3.4%. Asset turnover at 0.954 is reasonable for a food processor but cannot offset negative margins; leverage at 6.73x amplifies the loss into equity. Business reason: cost inflation (raw materials, logistics, utilities) and soft volumes (revenue -4.3% YoY) outpaced price/mix improvements, while SG&A rigidity limited operating leverage. Non-operating items (+0.08) and implied extraordinary gains (~1.9) partially cushioned PBT but are non-recurring in nature. Sustainability: margin headwinds are likely to persist unless price increases and productivity gains are executed; reliance on non-operating/extraordinary gains is not sustainable. Concerning trends: SG&A growth vs revenue is not disclosed, but the fact SG&A > gross profit is a red flag; negative EBITDA points to weak core earnings power; interest expense (0.39) erodes already thin margins.

Growth Assessment

Revenue contracted 4.3% YoY to 117.86, suggesting volume softness and/or reduced pricing in certain categories. Gross margin at 14.5% is insufficient versus SG&A intensity (18.0% of sales), implying current scale and mix cannot sustain profitability. Operating income of -4.04 (margin -3.4%) indicates negative operating leverage on lower sales. Ordinary income of -3.97 improved to PBT -2.08 via implied one-off gains; net income remained negative at -2.21, underscoring weak recurring profitability. EBITDA at -1.87 corroborates core weakness. ROIC of -6.5% indicates current investments are not earning their cost of capital. Outlook hinges on input cost normalization, successful price pass-through, SKU/mix upgrades, and factory efficiency; absent these, growth in sales will not translate into profits. Near term, we expect cautious top-line trends given consumer downtrading and private-label competition in processed meats. Any targeted price hikes and cost-down programs could lift gross margin by several hundred bps, but timing is uncertain. The company’s ability to stabilize working capital (receivables 23.69, inventories 10.26) without sacrificing sales will influence growth sustainability. Given limited disclosure on segment/unit economics, we assume no material expansionary growth until profitability stabilizes.

Financial Health

Liquidity is weak: current ratio 0.66 (<1.0 warning) and quick ratio 0.53 (<1.0 warning) indicate high short-term stress. Working capital is negative at -26.86, with current liabilities 79.40 significantly exceeding current assets 52.54. Maturity mismatch risk is high: short-term loans of 51.78 are nearly equal to total current assets and far exceed cash (14.09), implying ongoing rollover/refinancing needs. Solvency is stretched: D/E ratio 5.73x (>2.0 warning), equity only 18.36 versus assets 123.55 (leverage 6.73x). Interest coverage is deeply negative (-10.36x), signaling inadequate earnings to service interest (0.39). Long-term loans are modest at 6.43 relative to short-term borrowings, increasing refinancing risk in the next 12 months. Retained earnings are negative (-31.62), pointing to accumulated deficits and limited internal buffers. No off-balance sheet obligations were disclosed; absence of disclosure does not preclude leases or guarantees, but we cannot quantify them. Overall, balance sheet resilience is low, with elevated risk if credit conditions tighten.

Cash Flow Quality

OCF was -3.90 versus net income -2.21, producing an OCF/NI ratio of 1.76x; however, both are negative, so the nominal ratio does not indicate healthy quality. The negative OCF suggests either operating losses and/or working capital outflows; without a detailed bridge, we cannot isolate drivers. Capex was -2.02; on an analyst-estimated basis, implied free cash flow (OCF - Capex) is approximately -5.92, indicating external funding needs. Financing CF was +1.00, suggesting incremental borrowings (or reduced repayments) to fund deficits. Given negative EBITDA and OCF, dividend and capex funding rely on debt, which is unsustainable without a turnaround. No clear signs of working capital manipulation are evident from limited data, but receivables (23.69) are sizeable versus cash, and any extension of payment terms to support sales would further pressure OCF. Absent investing CF detail, we cannot assess asset sales; the gap between ordinary income and PBT indicates extraordinary items may have supported cash minimally if non-cash, but disclosure is insufficient.

Dividend Sustainability

Dividend-related items are unreported; with net loss (-2.21), negative OCF (-3.90), and high leverage (D/E 5.73x), capacity to pay dividends appears constrained. Retained earnings are negative (-31.62), indicating accumulated deficits and limited distributable reserves under JGAAP constraints unless offset by capital surplus transfers subject to corporate law. On an analyst-estimated basis, implied FCF is -5.92, insufficient to cover any cash distributions. Policy outlook likely prioritizes balance sheet stabilization and liquidity over shareholder returns until profitability and OCF recover. Without explicit guidance, we assume a conservative stance on dividends near term.

Risk Assessment

Business Risks:

• Commodity/input cost volatility (pork, beef, poultry, spices, energy) compressing gross margins
• Demand softness and consumer downtrading toward private label, pressuring pricing power
• Logistics and labor cost inflation increasing SG&A burden
• Product quality and food safety risks inherent to processed meats
• Concentration in domestic market leaves earnings exposed to local consumption trends

Financial Risks:

• Liquidity risk: current ratio 0.66 and quick ratio 0.53, with short-term loans 51.78 vs cash 14.09
• Refinancing risk: heavy reliance on short-term borrowings and negative interest coverage (-10.36x)
• Leverage risk: D/E 5.73x and low equity buffer (18.36)
• Interest rate risk: higher rates would materially raise interest burden (interest expense 0.39 already impactful)
• Covenant/banking relationship risk if losses persist

Key Concerns:

• SG&A (21.17) exceeding gross profit (17.12) driving operating losses
• Negative EBITDA (-1.87) and negative ROIC (-6.5%) signal structural profitability issues
• Accumulated deficit (retained earnings -31.62) limits financial flexibility
• Implied reliance on non-recurring items to narrow losses (ordinary to PBT delta ~1.9)
• Working capital deficit (-26.86) heightens going-concern stress if cash generation does not improve

Investment Implications

Key Takeaways:

• Core operations in loss with operating margin -3.4% and EBITDA negative
• Gross margin 14.5% insufficient versus SG&A intensity of 18.0%, necessitating price/mix/cost actions
• Liquidity and leverage are the most acute issues (CR 0.66, D/E 5.73x, interest coverage negative)
• Implied extraordinary gains supported PBT but are not a durable earnings lever
• Turnaround hinges on cost pass-through, cost-down, and working capital normalization

Metrics to Watch:

• Gross margin trajectory and price pass-through cadence
• SG&A-to-sales ratio and fixed cost reduction progress
• Operating cash flow and receivables/inventory turnover
• Short-term debt balance and refinancing terms vs available liquidity
• EBITDA and ROIC recovery toward positive territory

Relative Positioning: Within Japanese processed meat/food peers, the company currently sits in the weaker cohort on profitability (negative EBITDA/OP) and balance sheet strength (low liquidity, high leverage). Recovery to peer medians requires several quarters of margin repair and deleveraging.

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