Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥4068.7B | ¥3657.8B | +11.2% |
| Operating Income | ¥272.4B | ¥273.0B | −0.2% |
| Profit Before Tax | ¥270.4B | ¥267.3B | +1.1% |
| Net Income | ¥201.3B | ¥203.7B | −1.2% |
| ROE | 1.4% | 1.4% | - |
Executive Summary
Despite higher revenue, operating income and net income were broadly flat to slightly lower, making margin quality the key focus of this quarter. Revenue increased across all regions to ¥4068.7B (+11.2% YoY), while operating income was ¥272.4B (△0.2% YoY) and net income attributable to owners of the parent was ¥149.2B (△3.2% YoY). The decline in gross margin to 36.6% offset the benefits of higher revenue and could not be fully absorbed by the improvement in the SG&A ratio (29.6%, △0.6pt YoY).
Factors Affecting Results
【Revenue】Revenue increased 11.2% YoY to ¥4068.7B, with all five regions recording revenue growth. By region, Oceania grew +66.3%, Europe +13.0%, the Americas +9.8%, Asia +9.6%, and Japan +4.9%, with overseas operations driving growth. The revenue mix was Japan 39.4%, Europe 21.6%, Asia 20.4%, the Americas 11.1%, and Oceania 7.5%, with Japan maintaining its position as the largest segment.
【Profit and Loss】Operating income was ¥272.4B (△0.2% YoY), remaining broadly flat as the decline in gross margin offset the benefit of higher revenue. Gross margin declined to 36.6% from 37.9% in the same period of the previous year, confirming an increase in the cost of sales. The Japan Business posted segment income of ¥42.8B (△11.9% YoY) and a margin of 2.7%, substantially below the 9.7–12.7% recorded in the four overseas regions, making it a drag on consolidated earnings. Profit before tax was ¥270.4B (+1.1% YoY), slightly above operating income; however, net income attributable to owners of the parent, after deducting profit attributable to non-controlling interests of ¥52.1B, was ¥149.2B (△3.2% YoY). In conclusion, the company achieved revenue growth but recorded lower earnings.
Segment Analysis
The Europe Business was the largest contributor to segment income at ¥111.4B and maintained a high margin of 12.7%. Although the Japan Business had the largest revenue mix (39.4%), its margin remained at 2.7%, and its 11.9% YoY decline in earnings constrained the consolidated margin. The Oceania Business recorded substantial revenue and earnings growth of +66.3% and +119.8%, respectively; although its scale is small, its growth rate was outstanding. Asia and the Americas both achieved higher revenue and earnings, with margins of 12.3% and 9.7%, respectively, and overseas operations as a whole remained generally solid.
Key Financial Indicators
【Profitability】The operating margin was 6.7%, down from 7.5% in the same period of the previous year, while the net margin, based on consolidated quarterly profit, was 4.9%. The gross margin of 36.6% is at a certain level for the food and beverage industry but contracted from the previous year due to higher costs. 【Cash Quality】Operating Cash Flow (OCF) was ¥206.4B, equivalent to 1.38 times net income attributable to owners of the parent of ¥149.2B, indicating solid cash backing for earnings. 【Investment Efficiency】ROE was 1.4% (on a quarterly basis, before annualization), indicating room to improve capital efficiency from the perspectives of total asset turnover and financial leverage. 【Financial Soundness】The Equity Ratio was 60.3%, up from 59.3% in the same period of the previous year. Interest-bearing bonds and borrowings totaled ¥154.3B on a combined current and non-current basis, well below cash and cash equivalents of ¥1324.2B, indicating a conservative financial structure.
Cash Flow Analysis
Operating Cash Flow (OCF) increased substantially by +79.4% YoY to ¥206.4B, demonstrating strong cash generation that exceeded net income attributable to owners of the parent of ¥149.2B. Progress in collecting trade receivables resulted in a cash inflow of ¥417.5B, while the increase in inventories of ¥129.1B and decrease in trade payables of ¥317.1B were sources of cash outflow related to working capital. Investing CF was △¥154.0B, primarily due to capital expenditures of ¥164.3B, resulting in positive free cash flow of ¥52.3B after deducting investing CF from operating CF. Financing CF was △¥220.8B, mainly due to dividend payments of ¥185.4B, with dividends paid during the quarter exceeding free cash flow. Cash and cash equivalents declined from ¥1486.6B at the beginning of the period to ¥1324.2B, but the company maintains sufficient cash relative to its level of interest-bearing debt.
Earnings Quality
Other income of ¥8.8B and other expenses of ¥21.2B were recorded against operating income of ¥272.4B, resulting in a net negative impact of ¥12.4B; however, the impact was small relative to revenue, indicating low dependence on one-time items. The difference between financial income of ¥6.8B and financial expenses of ¥8.8B was a net negative ¥2.0B, and the divergence between profit before tax of ¥270.4B and operating income was limited. The difference of ¥51.9B between consolidated quarterly profit of ¥201.3B and net income attributable to owners of the parent of ¥149.2B was attributable to profit attributable to non-controlling interests, reflecting the presence of overseas consolidated subsidiaries. As operating CF exceeded net income attributable to owners of the parent and accruals were small, earnings quality on a cash basis can be assessed as sound.
Earnings Forecast and Guidance
Q1 progress against the full-year company forecast was 22.3% for revenue, 17.6% for operating income, and 16.8% for net income attributable to owners of the parent. Revenue progress was nearly in line with the quarterly benchmark of 25%, but operating income and net income progress were below this level. Accordingly, recovery in margins from Q2 onward will be required to achieve the full-year plan of +4.2% operating income growth. No revisions were made to either the earnings forecast or the dividend forecast.
Shareholder Returns
The full-year dividend forecast is ¥120.0 per share, and the Payout Ratio based on forecast EPS of ¥288.03 is 41.7%, which does not represent an excessive burden relative to earnings. Dividend payments during the quarter were ¥185.4B, exceeding free cash flow of ¥52.3B for the same period; however, because dividends are paid based on full-year earnings and cash flow, seasonality must be taken into account when comparing quarterly figures in isolation. Treasury shares are extremely limited, and no share repurchases have been confirmed; therefore, the return metric is evaluated based on the Payout Ratio. No revision was made to the dividend forecast.
Risk Factors
-
Raw material cost increases and margin pressure: Gross margin declined from 37.9% in the same period of the previous year to 36.6%, suggesting that increases in raw material, packaging, energy, and logistics costs may not have been fully absorbed through price pass-through or mix improvement.
-
Declining profitability in the Japan Business: While revenue increased +4.9% YoY, segment income declined △11.9% and the margin was 2.7%, substantially below the four overseas regions (9.7–12.7%), making it a constraint on the consolidated margin.
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Working capital fluctuations: Working capital movements, including a ¥139.8B increase in inventories and a ¥307.3B decrease in trade payables, are weighing on operating CF. Inventory levels and payment-term management could affect future cash generation capacity.
Industry Benchmark (For Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.7% | – | – |
| Net Margin | 4.9% | – | – |
As comparative data for the company’s operating margin and net margin against the industry median has not been prepared, the figures are presented only as absolute levels.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 11.2% | – | – |
The revenue growth rate was in the double digits and is viewed as exceeding the general growth level of the food and beverage industry.
※Source: Compiled by the Company
Key Points from the Earnings Results
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Revenue increased +11.2%, but operating income was nearly flat at △0.2%; the focus of the earnings results is therefore not the growth rate but the decline in gross margin.
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By region, Asia, the Americas, and Oceania recorded earnings growth, while Japan and Europe recorded lower earnings, and the disparity in profitability among segments affected the consolidated margin.
-
Operating CF increased +79.4% YoY to 1.38 times net income attributable to owners of the parent, demonstrating strong cash backing for current-period earnings.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (Bearish) | ¥3,935 |
| base (Base) | ¥4,002 |
| bull (Bullish) | ¥4,048 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | ¥4,256 |
| Adjusted Forecast EPS | ¥303.5 |
| Cost of Equity r | 9.27% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 0.50%) |
| Persistence Factor for Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 41.7% |
| Forecast EPS Confidence Adjustment | ×1.054 (based on the track record of guidance achievement rates for comparable companies) |
| Implied PBR / PER | 0.94x / 13.2x |
Sensitivity: ¥3,892–¥4,117 at ±1% for the cost of equity, and ¥3,993–¥4,008 at ω±0.1.
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 (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)
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, where necessary, after consulting with a professional.
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AI Financial Analysis
Executive Summary
FY2026 Q1 was a mixed start: revenue expanded strongly, but operating and attributable profit declined modestly as gross-margin pressure outweighed improved SG&A leverage. Revenue rose 11.2% YoY to ¥406.9bn. Operating income was broadly flat at ¥27.2bn, down 0.2% YoY. Profit attributable to owners of the parent declined 3.2% YoY to ¥14.9bn, and EPS declined to ¥48.28 from ¥49.90. The operating margin compressed by 77bp to 6.7% from 7.5%. Gross margin fell by 135bp to 36.6%, indicating that cost inflation, mix, pricing, or foreign-exchange effects absorbed much of the top-line growth. SG&A increased 9.1% YoY, slower than revenue growth, and the SG&A-to-revenue ratio improved by 57bp to 29.6%. This cost discipline partly offset the gross-margin decline but did not fully preserve operating-profit growth. Finance costs fell 37.5% YoY to ¥0.9bn, helping profit before tax increase 1.1% to ¥27.0bn. The consolidated effective tax rate was 25.5%, compared with 23.8% a year earlier, which contributed to the 1.2% decline in consolidated net income. The quality alert's 0.55 tax-burden ratio reflects profit attributable to owners relative to pre-tax profit and is depressed by the allocation of consolidated profit to non-controlling interests; the consolidated tax expense-to-profit-before-tax rate is 25.5%. Operating cash flow improved materially to ¥20.6bn from ¥11.5bn, exceeding consolidated net income by 1.38x. Free cash flow was positive at ¥5.2bn after ¥16.4bn of capital expenditure. However, quarterly dividends paid of ¥18.5bn exceeded both quarterly attributable earnings and free cash flow, reducing cash and equivalents by ¥16.2bn from the fiscal year-end. Europe remained the largest contributor to segment profit, while Japan was the principal drag on consolidated segment-profit growth. Full-year company guidance calls for 4.2% operating-income growth and 0.3% consolidated-net-income growth, implying a meaningful acceleration beyond Q1. The investment debate therefore centers on whether price/mix, regional growth and SG&A discipline can restore gross-margin and operating-margin expansion through the remainder of the year.
Profitability Analysis
Annualized DuPont ROE was 4.2%, comprising a 3.7% net profit margin, 0.746x asset turnover and 1.52x financial leverage. The weak component is profitability rather than balance-sheet leverage: annualized asset turnover is reasonable for a global branded beverage portfolio and leverage remains moderate. The Q1 operating-margin decline to 6.7% from 7.5% was driven by gross-margin compression, as revenue increased ¥41.1bn while gross profit increased only ¥10.1bn. Cost of sales rose 13.7% YoY, faster than revenue growth, causing the gross-margin decline to 36.6% from 37.9%. Conversely, SG&A grew 9.1%, below the 11.2% revenue increase, creating positive operating leverage within overhead and commercial spending. The SG&A ratio declined to 29.6% from 30.2%, but the improvement was insufficient to offset the 135bp gross-margin headwind. Parent-attributable net margin fell 54bp to 3.7%, reflecting the lower operating margin and a higher consolidated tax rate despite lower net finance costs. Finance income of ¥0.7bn and finance costs of ¥0.9bn resulted in a limited net finance cost, consistent with the 0.993 interest-burden ratio and low earnings sensitivity to interest expense. Europe is the core business by segment-profit contribution, generating ¥11.1bn of segment profit, or roughly 41% of consolidated operating income before unallocated corporate costs. Europe delivered a 12.7% segment margin, ahead of Asia at 12.3%, Oceania at 10.1%, the Americas at 9.7%, and Japan at 2.7%. Japan's segment profit fell 11.9% despite 4.9% sales growth, making it the largest operational drag. The sustainability of group margin recovery depends principally on easing cost-of-sales pressure and improving Japan profitability; current SG&A leverage is supportive but cannot independently deliver the full-year operating-profit target.
Growth Assessment
Revenue growth was broad based across all reported regions. Japan revenue increased 4.9% YoY to ¥160.2bn, Europe rose 13.0% to ¥88.0bn, Asia increased 9.6% to ¥83.1bn, Oceania rose 66.3% to ¥30.4bn, and the Americas increased 9.8% to ¥45.2bn. Oceania was the fastest-growing region and more than doubled segment profit to ¥3.1bn from ¥1.4bn, lifting its segment margin to 10.1% from 7.7%. The Americas also delivered constructive growth, with segment profit up 10.8% to ¥4.4bn. Asia segment profit rose 1.4% to ¥10.2bn, materially lagging sales growth and reducing margin to 12.3% from 13.3%. Europe sales growth was strong but segment profit declined 5.6% to ¥11.1bn, reducing margin to 12.7% from 15.1%. Japan's low-margin profile and profit decline make domestic price/mix and input-cost pass-through key determinants of group earnings progression. Full-year revenue guidance is ¥1,826.0bn, putting Q1 revenue progress at 22.3%, 2.7 percentage points below the standard 25% Q1 run rate. Operating-income progress is 17.6% against full-year guidance of ¥155.0bn, 7.4 percentage points below the standard run rate. Parent-attributable profit progress is 16.8% versus the ¥89.0bn forecast, 8.2 percentage points below the standard run rate. These progress rates remain within a 10-percentage-point seasonal tolerance, but they require stronger subsequent-quarter profitability than delivered in Q1. The unchanged guidance signals management confidence that regional growth, price/mix and cost actions will support a recovery in operating-income growth.
Financial Health
The balance sheet remains conservatively capitalized, with total equity of ¥1,430.1bn and an equity ratio of 60.3%. Total liabilities decreased to ¥750.4bn from ¥792.8bn at the fiscal year-end, while total equity increased by ¥4.9bn. The reported debt-to-equity ratio of 0.52x is below the 1.0x conservative benchmark and well below the 2.0x level associated with aggressive balance-sheet risk. Current assets of ¥692.6bn exceeded current liabilities of ¥534.6bn, producing a current ratio of approximately 1.30x. The current ratio is below the 1.5x healthy benchmark but above 1.0x, so there is no immediate liquidity warning. The quick ratio was approximately 1.01x after excluding inventories, indicating that liquid current assets broadly cover current obligations. Short-term bonds and borrowings were only ¥14.9bn, modest relative to cash and equivalents of ¥132.4bn and current assets. Trade payables of ¥472.8bn are the dominant current-liability component and are supported by receivables of ¥362.0bn, inventories of ¥151.5bn and cash balances. Financial liabilities, including lease-related obligations, warrant monitoring but are accommodated within a strong equity base. Goodwill represented 20.9% of equity and 13.7% of assets, both within healthy thresholds. Intangible assets represented 25.8% of assets, showing an IP-heavy balance sheet but remaining below the 30% concentration warning threshold. Deferred tax liabilities of ¥121.3bn are substantial but are noncurrent and do not create near-term refinancing pressure. Right-of-use assets were ¥66.1bn, with quarterly lease payments of ¥3.5bn, representing a recurring fixed cash commitment that should be assessed alongside debt service.
Notable B/S Changes
Cash and cash equivalents: -¥162.5bn from FY2025 year-end to ¥132.4bn - dividend payments and investment spending exceeded Q1 free cash flow, although liquidity remains adequate. Trade and other receivables: -¥392.0bn to ¥362.0bn - favorable collection was the principal contributor to the improvement in Q1 operating cash flow. Inventories: +¥14.0bn (+10.2%) to ¥151.5bn - inventory investment consumed operating cash flow and should be monitored against demand and procurement conditions. Trade and other payables: -¥307.3bn to ¥472.8bn - the reduction was a material working-capital cash outflow and partly offset receivables collection. Total liabilities: -¥42.4bn to ¥750.4bn - deleveraging supports the rise in the equity ratio to 60.3%.
Cash Flow Quality
Cash conversion was strong in Q1, with operating cash flow of ¥20.6bn equaling 1.38x consolidated net income of ¥20.1bn. This exceeds the 1.0x high-quality earnings benchmark and does not indicate an accrual-quality concern. The accruals ratio of negative 0.3% also supports the view that reported earnings were well backed by cash generation. Operating cash flow improved ¥9.1bn YoY, despite consolidated net income declining by ¥0.2bn. The improvement was supported by a ¥41.8bn inflow from lower trade and other receivables. This was partly offset by a ¥31.7bn reduction in trade and other payables and a ¥12.9bn inventory build. The inventory build was smaller than the prior-year ¥19.6bn outflow, which also aided year-on-year operating-cash-flow growth. The receivables decline from ¥401.2bn at the fiscal year-end to ¥362.0bn indicates favorable Q1 collection dynamics, while inventories rose from ¥137.5bn to ¥151.5bn. Positive free cash flow of ¥5.2bn was generated after ¥16.4bn of capital expenditure. Capital expenditure declined 13.8% YoY, while depreciation and amortization increased to ¥22.7bn, so Q1 investment spending was below the current depreciation-and-amortization charge. Free cash flow did not cover the ¥18.5bn dividend payment during the quarter, and financing outflows of ¥22.1bn consequently contributed to the reduction in cash. Cash and equivalents nevertheless remained substantial at ¥132.4bn. The key cash-flow variables for subsequent quarters are the normalization of receivables, the scale of further inventory investment, and whether operating cash flow remains sufficient to fund capital expenditure and shareholder distributions.
Dividend Sustainability
The full-year dividend forecast is ¥120 per share, unchanged from the company plan. Against forecast EPS of ¥288.03, the implied full-year dividend payout ratio is approximately 41.7%, comfortably below the 60% sustainability benchmark. No share repurchases were reported, so the dividend payout ratio is the relevant capital-return measure. Q1 dividends paid were ¥18.5bn, equivalent to approximately ¥60 per share and exceeding Q1 EPS of ¥48.28. The quarterly cash payout therefore exceeded parent-attributable Q1 earnings and free cash flow, but this timing does not by itself determine full-year sustainability. Annual forecast parent-attributable profit of ¥89.0bn provides coverage for the implied annual cash dividend of roughly ¥37.1bn. Positive Q1 free cash flow of ¥5.2bn demonstrates internally generated cash after investment, although it was insufficient to fully fund the quarter's distribution. The strong equity ratio, moderate reported debt-to-equity ratio and ¥132.4bn cash balance provide balance-sheet capacity to absorb seasonal dividend timing. Dividend sustainability ultimately depends on delivery of the full-year earnings forecast and continued conversion of earnings into operating cash flow. A deterioration in gross margin or a persistent working-capital outflow would be the primary threats to distribution coverage rather than leverage.
Risk Assessment
Business risks include Input-cost, packaging, energy and foreign-exchange pressure: cost of sales increased 13.7% YoY, faster than 11.2% revenue growth, compressing gross margin by 135bp., Japan profitability risk: Japan segment revenue grew 4.9%, but segment profit fell 11.9% and margin was only 2.7%, leaving limited cushion against further cost inflation or promotional intensity., European and Asian margin risk: Europe segment profit declined 5.6% despite 13.0% sales growth, while Asia segment-profit growth of 1.4% lagged 9.6% revenue growth., Global beverage demand, competitive promotion and private-label risk: maintaining price/mix improvement may be difficult if consumers trade down or retailers increase promotional pressure., Food and beverage operational risk: product quality, food-safety incidents, supply disruption and climate-related volatility in agricultural inputs could impair brand value and raise procurement costs., Foreign-currency risk: overseas operations are material, and currency translation contributed ¥33.7bn of positive OCI in Q1, demonstrating sensitivity of reported equity and comprehensive income to exchange movements..
Financial risks include Cash-distribution timing risk: Q1 dividends of ¥18.5bn exceeded Q1 free cash flow of ¥5.2bn, contributing to the decline in cash and equivalents., Working-capital reversal risk: Q1 operating cash flow benefited from a ¥41.8bn receivables inflow, while inventories increased ¥12.9bn and payables decreased ¥31.7bn., Intangible-asset valuation risk: goodwill and intangible assets total ¥862.5bn, equal to 39.5% of total assets, making long-term asset values important to capital preservation., Quality alert—tax burden: the 0.55 tax-burden ratio is below the 0.60 warning threshold because attributable earnings are measured after non-controlling interests, while the consolidated effective tax rate was 25.5%. The alert does not indicate a 45% consolidated cash-tax rate, but it highlights that parent-attributable earnings can diverge from pre-tax consolidated profit because of ownership structure..
Key concerns include Highest priority: restoring gross margin, because Q1 gross-margin compression was the direct reason revenue growth did not translate into operating-profit growth., High priority: delivering the implied second-to-fourth-quarter earnings acceleration required to meet unchanged full-year guidance., Moderate priority: sustaining receivables collection and controlling inventory growth so that Q1 cash conversion remains repeatable., Moderate priority: improving Japan and Europe segment profitability, as both recorded year-on-year segment-profit declines..
Investment Implications
Key takeaways include Revenue momentum was strong and geographically diversified, with all five reported regions growing sales., Profit conversion was weak in Q1: operating income was flat and parent-attributable profit declined despite double-digit revenue growth., SG&A discipline improved, but cost-of-sales inflation or unfavorable mix produced a 135bp gross-margin decline., Europe remains the core segment by profit contribution, while Japan is the largest drag on earnings momentum., Operating cash flow and accrual metrics indicate high-quality Q1 earnings conversion., The balance sheet has substantial equity support, moderate reported leverage and no immediate liquidity mismatch., The annual dividend plan appears sustainable against forecast earnings, although quarterly cash distributions exceeded Q1 free cash flow..
Metrics to watch include Gross margin and operating margin, particularly the ability to reverse the Q1 135bp and 77bp contractions., Japan, Europe and Asia segment-profit growth relative to their revenue growth., Progress toward full-year operating-income guidance of ¥155.0bn and parent-attributable-profit guidance of ¥89.0bn., Inventory growth, trade receivables collection and trade-payables movements., Operating cash flow and free cash flow relative to capital expenditure and dividends., Foreign-exchange effects on overseas earnings, OCI and reported equity..
Regarding relative positioning, Suntory Beverage & Food combines a strong branded global revenue base, diversified regional exposure, high cash conversion and a well-capitalized IFRS balance sheet. Its 36.6% gross margin remains within the healthy food-and-beverage range, but the 6.7% operating margin and 4.2% annualized ROE are below the stronger profitability benchmarks. Relative operating performance will be determined by whether its regional scale and SG&A leverage can translate top-line growth into a durable recovery in gross margin and parent-attributable earnings.