TAKARA HOLDINGS INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥186.56B
• Operating Income: ¥7.79B
• Net Income: ¥3.29B
• EPS: ¥29.40

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: FY2026 Q2 was a top-line growth but earnings-compression quarter, with margins and ordinary profit under pressure and an unusually high tax rate depressing net income. Revenue grew 5.7% YoY to 1,865.6, while operating income fell 26.1% YoY to 77.9 and ordinary income declined 33.9% to 73.9, driving net income down 37.3% to 56.9. Gross profit was 616.4, implying a 33.0% gross margin, but SG&A of 538.6 (28.9% of sales) left limited operating leverage. Operating margin compressed to 4.17% from an estimated 5.97% a year ago, a contraction of roughly 180 bps. Net margin contracted to 3.05% from an estimated 5.15% a year ago, a contraction of ~210 bps, amplified by a very high effective tax rate of 61.7%. Ordinary profit was further weighed by net non-operating expense of about 4.0 despite 12.0 of non-operating income (notably 5.3 dividends and 3.4 interest income). Total comprehensive income was negative (-35.0), indicating sizable OCI losses (likely securities valuation and/or FX), which reduced equity despite positive net income. Cash generation was resilient relative to earnings: operating cash flow of 59.7 exceeded net income (OCF/NI = 1.05x), suggesting acceptable earnings quality this quarter. Liquidity remains robust with a current ratio of 331.6% and cash/deposits of 605.6; leverage is conservative at D/E 0.66x and interest coverage a strong 11.0x. Capital efficiency is weak (ROE 2.0% and ROIC 1.4%), well below typical cost of capital, signaling limited value creation in the period. Equity remains solid at 2,874.6 (equity/asset ratio ~60%), but the negative OCI warrants monitoring given investment securities of 356.5 on the balance sheet. Shareholder returns included 30.0 of buybacks within financing CF (-67.9); the calculated payout ratio stands at 107.4%, implying a potentially stretched distribution versus current earnings. Forward-looking, earnings recovery likely hinges on margin repair (pricing/mix, input cost normalization), normalization of the tax rate, and tighter SG&A control. Absent improvement, low ROIC versus WACC is a headwind to valuation; conversely, if margin and tax headwinds abate in 2H, the earnings trajectory could stabilize given solid liquidity.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.0% × 0.391 × 1.66 ≈ 2.0%. The biggest negative swing came from net profit margin, as operating margin contracted materially (~180 bps YoY to 4.17%) and the effective tax rate surged to 61.7%, compressing net margin to ~3.05% (~210 bps YoY contraction by estimate). Asset turnover of 0.391 is modest for the sector and roughly in line with recent history given the asset-heavy profile (intangibles 577.8 including goodwill 301.0). Financial leverage is conservative at 1.66x assets/equity (D/E 0.66x), contributing little to ROE. Business drivers: higher SG&A intensity (SG&A 28.9% of sales and 87.4% of gross profit) and likely input cost/mix pressures limited operating leverage; non-operating net loss (~4.0) further clipped ordinary income. The sharp rise in the tax rate is a key reason for the drop from operating to net profit; this may include one-time items or geographic mix effects. Sustainability: operating margin headwinds could ease if pricing and procurement catch up to costs, but the elevated tax rate looks non-structural and could normalize, offering some rebound in net margin. Concerning trends to flag: operating income fell despite revenue growth (negative operating leverage), and ordinary income fell more than operating income; SG&A growth likely outpaced revenue (exact YoY SG&A not disclosed), indicating cost discipline pressure.

Growth Assessment

Revenue grew 5.7% YoY to 1,865.6, indicating steady top-line momentum. However, profitability deteriorated: operating income -26.1% YoY to 77.9 and net income -37.3% to 56.9 reflect margin compression and high taxes. Gross margin stood at 33.0%, but SG&A absorption was heavy, yielding a 4.17% operating margin. EBITDA was 137.4 (7.4% margin), cushioning interest by 11.0x but still below prior period earnings power. Non-operating income (12.0) partially offset higher non-operating expenses (16.0), with ordinary income falling 33.9% to 73.9. Total comprehensive income turned negative (-35.0), highlighting market valuation/FX headwinds affecting equity. Outlook: near-term growth quality hinges on margin repair (pricing, mix, cost pass-through) and normalization of the tax rate; if the effective tax rate reverts closer to historical norms, net margin could improve even without large operating gains. Revenue sustainability appears reasonable given diversified businesses, but profitability remains the swing factor. With ROIC at 1.4%, management focus likely shifts to capital discipline and portfolio returns to lift returns toward cost of capital.

Financial Health

Liquidity is strong: current assets 2,241.8 vs current liabilities 676.2 yield a current ratio of 331.6% and a quick ratio of 222.3%; no warning on liquidity. No maturity mismatch risk is evident: short-term loans are 63.5 versus cash/deposits 605.6 and robust working capital of 1,565.7. Solvency is conservative with total liabilities 1,891.5 and total equity 2,874.6 (equity/asset ratio ~60.3%); D/E at 0.66x and interest coverage at 11.0x are comfortable. Long-term loans are 405.2 and noncurrent liabilities 1,215.4, manageable given the equity base. There are no reported off-balance sheet obligations in the data provided; however, negative OCI suggests market-sensitive exposures (securities 356.5) that can affect equity. No explicit red flags such as Current Ratio < 1.0 or D/E > 2.0.

Cash Flow Quality

OCF/Net Income is 1.05x (59.7 OCF vs 56.9 NI), above the 1.0x threshold, indicating acceptable earnings cash conversion this quarter. Free cash flow and capex were unreported, limiting FCF sustainability analysis relative to dividends and strategic capex needs. Financing cash flow was -67.9, including -30.0 of share repurchases; dividends paid were unreported. Working capital line items are disclosed but changes are not; thus, no concrete evidence of working capital-driven earnings support or manipulation can be inferred. Overall, cash quality is satisfactory for the quarter, but visibility is constrained by missing investing CF and capex detail.

Dividend Sustainability

The calculated payout ratio is 107.4%, suggesting distributions exceeded earnings over the period, which is not sustainable over the long term absent stronger cash generation. Dividends paid were not disclosed; buybacks totaled 30.0, adding to cash returns. OCF of 59.7 indicates some capacity to fund shareholder returns, but without FCF/capex data we cannot confirm coverage. Given ROIC at 1.4% and margin pressure, sustained payouts above earnings would likely rely on balance sheet strength (which is currently solid) or improved 2H earnings. Policy outlook: expect management to balance stable dividends with capex and portfolio returns; near-term dividend growth appears contingent on margin normalization and tax-rate normalization.

Risk Assessment

Business Risks:

• Margin pressure from input cost inflation and adverse product mix limiting operating leverage
• High SG&A intensity (28.9% of sales; 87.4% of gross profit) constraining profitability
• Unusually high effective tax rate (61.7%) depressing net income
• Negative total comprehensive income (-35.0) indicating valuation/FX-driven OCI losses
• Low capital efficiency (ROIC 1.4%, ROE 2.0%) below cost of capital

Financial Risks:

• Intangible assets (577.8) including goodwill (301.0) pose impairment risk if earnings weaken
• Market-sensitive investment securities (356.5) create equity volatility via OCI
• Potential dividend/buyback commitments versus earnings (payout 107.4%) could pressure cash if earnings do not recover
• Exposure to interest rate changes, though current interest coverage is strong (11.0x)

Key Concerns:

• Operating margin contraction of ~180 bps YoY to 4.17%
• Net margin contraction of ~210 bps YoY to 3.05% on a 61.7% tax rate
• Ordinary income down 33.9% YoY despite higher revenue, indicating weaker core profit quality
• Negative OCI dragging comprehensive income and equity
• ROIC far below 5% warning threshold, implying limited value creation

Investment Implications

Key Takeaways:

• Top-line growth (+5.7%) offset by substantial margin compression and tax headwinds
• Earnings quality acceptable (OCF/NI 1.05x), but comprehensive losses reduce equity
• Balance sheet and liquidity are strong; leverage conservative (D/E 0.66x)
• Capital efficiency weak (ROIC 1.4%, ROE 2.0%), requiring margin and asset efficiency improvements
• Shareholder returns included buybacks (30.0); payout ratio >100% suggests limited headroom without earnings recovery

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Effective tax rate normalization in 2H
• Gross margin and input cost pass-through (pricing/mix)
• OCI volatility tied to investment securities and FX
• ROIC progression toward >5% and ultimately >7–8%
• OCF and capex to assess FCF coverage of dividends/buybacks

Relative Positioning: Within Japanese beverages/seasonings peers, the company shows solid balance sheet strength and liquidity but lags on profitability and capital efficiency this quarter, with ROIC and net margins below typical peer medians; recovery depends on margin restoration and tax normalization.

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