Suntory Beverage & Food Limited FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥406.87B
• Operating Income: ¥27.24B
• Net Income: ¥20.13B
• EPS: ¥48.28

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Suntory Beverage & Food’s FY2026 Q1 was mixed: strong top-line growth but margin compression kept operating profit flat and owners’ profit slightly lower year on year. Revenue rose 11.2% YoY to 4,068.7, with broad-based regional growth and standout momentum in Oceania. Gross profit increased to 1,487.5, but the gross margin contracted by about 130 bps to 36.6% as cost of sales outpaced revenue growth. SG&A was 1,204.1, with the SG&A ratio improving by roughly 60 bps to 29.6% on operating leverage and disciplined spending. Operating income was 272.4 (-0.2% YoY), implying a 6.7% operating margin, down about 77 bps from 7.5% in the prior-year quarter. Profit before tax improved 1.1% to 270.3, supported by a lower net finance cost and stable other income/expense. Net income attributable to owners was 149.2 (-3.2% YoY) as higher non-controlling interests absorbed a larger share of profits. Operating cash flow strengthened to 206.4 (from 115.1), with cash conversion supported by higher EBITDA, though working capital was a material drag (inventory build and lower payables). Free cash flow was positive at 52.3 after 164.3 of capex, but fell short of dividend outflows of 185.4 in the quarter. The balance sheet remains conservative with an equity ratio of 60.3% and D/E of 0.52x, while goodwill and intangibles reflect an acquisitive, brand-driven portfolio. Segment-wise, Europe and Asia delivered double-digit margins and were the key profit anchors, while Japan’s profitability softened. Guidance context shows progress rates below a typical Q1 run-rate: revenue at 22.3% of full-year, operating profit at 17.6%, and owners’ profit at 16.8%, reflecting seasonality and early-year margin pressure. Earnings quality is solid with OCF/NI at 1.38x and an accruals ratio of -0.3%, although inventory days are elevated and warrant monitoring. Tax expense was 25.5% of PBT, but the net tax burden ratio appears heavier due to higher profit allocation to non-controlling interests rather than taxation. Strategic implications: pricing/mix and cost discipline need to offset input cost and logistics inflation to restore margins, while continued growth in Oceania and steady Europe/Asia contributions are positives. Overall, the quarter supports the growth trajectory, but near-term focus is on rebuilding operating margin and normalizing working capital to sustainably fund capex and dividends.

Profitability Analysis

ROE (DuPont 3-factor) = Net Profit Margin (3.7%) × Asset Turnover (0.187) × Financial Leverage (1.52x) = c. 1.0% for the quarter. The largest change YoY was a decline in net margin, driven by gross margin compression (c. -130 bps) despite a 60 bps improvement in the SG&A ratio, and a higher share to non-controlling interests. Asset turnover was broadly stable given strong revenue growth against a largely steady asset base. Operating margin fell about 77 bps to 6.7% as input costs and logistics remained elevated relative to pricing/mix. The interest burden is benign (EBT/EBIT 0.993), so financing costs did not pressure profitability. The tax expense rate was 25.5%, but the tax burden ratio (NI/EBT 0.552) was depressed mainly by profit attribution to non-controlling interests rather than tax. The gross margin pressure reflects input inflation and FX mix; SG&A discipline partially cushioned the impact. Sustainability: cost normalization and further pricing/mix could restore margins, but visibility depends on commodity and FX trends. Flag: SG&A growth (+9.1% YoY) was below revenue growth (+11.2%), indicating positive operating leverage despite lower gross margin.

Growth Assessment

Top-line growth of 11.2% was broad-based: Japan +4.9%, Europe +13.0%, Asia +9.6%, Americas +9.8%, and Oceania +66.3%. Profit growth diverged by region: Europe and Asia margins remained double-digit; Japan’s operating profit declined 11.9% with a 2.7% margin; Oceania sharply scaled both revenue and profit with a 10.1% margin. Company-wide operating profit was stable (-0.2% YoY) despite the strong top line, indicating near-term cost pressure and/or adverse mix. EBITDA improved (EBIT 272.4 plus D&A 227.1 -> EBITDA ~499.5), providing a larger cash earnings base even as working capital absorbed cash. Growth sustainability rests on maintaining price/mix discipline, leveraging brand strength in Europe/Asia, and integrating the fast-growing Oceania footprint while defending Japan margins. Equity-method results contributed 1.27, modest to total profits, underscoring reliance on core operations. With intangibles at 25.8% of assets, brand-driven growth remains a key pillar; continued marketing and innovation are important to sustain pricing power.

Financial Health

Liquidity is sound with current assets of 6,926.1 against current liabilities of 5,345.9, implying a current ratio around 1.3; comfortable but below the 1.5 ‘healthy’ benchmark. Solvency is conservative: equity ratio 60.3% and D/E 0.52x. Short-term borrowings (149.4) are small relative to cash (1,324.2) and receivables (3,620.4), indicating low near-term refinancing risk. Maturity mismatch risk is limited given modest debt and strong operating cash generation; lease obligations are present (ROU assets 660.9; quarterly lease payments 35.0) and should be factored into adjusted leverage. Deferred tax liabilities (1,212.5) are sizable but stable, consistent with the asset base. No explicit off-balance sheet obligations were noted beyond standard lease commitments. Overall capital structure comfortably supports ongoing capex and working capital needs.

Notable B/S Changes

Cash and cash equivalents: -16.2bn (-10.9%) QoQ – seasonal OCF timing and higher dividends reduced cash. Trade and other receivables: -39.2bn (-9.8%) QoQ – post-year-end collection improved liquidity. Inventories: +14.0bn (+10.2%) QoQ – build ahead of peak season; monitor for turnover normalization. Trade and other payables: -30.7bn (-6.1%) QoQ – settlement post year-end contributed to OCF outflow. Non-controlling interests: +5.7bn (+5.2%) QoQ – stronger contributions from subsidiaries increased NCI. Other components of equity: +3.0bn (+1.5%) QoQ – positive FX translation and hedge valuation gains.

Cash Flow Quality

OCF was 206.4, 1.38x owners’ net income, indicating high earnings quality. Free cash flow was 52.3 after 164.3 of capex, positive but below quarterly dividends of 185.4. Working capital was a net cash outflow: inventories increased (-129.1) and payables declined (-317.1), partially offset by favorable receivables movements, driving cash conversion (OCF/EBITDA) to roughly 0.41 in the quarter. Accruals quality is strong (accruals ratio -0.3%). There were no signs of unusual non-operating profit reliance; finance income/costs and other income/expenses were modest relative to revenue. Sustainability: FCF should improve as inventory normalizes and payables stabilize; monitoring seasonal patterns is key to funding dividends and capex without additional leverage.

Dividend Sustainability

DPS is 60, and forecast EPS is 288.03, implying a payout ratio of about 21%, comfortably within sustainable levels. In-quarter cash coverage was tight: FCF of 52.3 did not fully cover dividends paid of 185.4, reflecting seasonal working capital outflows and capex timing. With conservative leverage and solid OCF capacity, full-year dividend capacity is supported by forecast owners’ profit of 89.0 and expected working capital normalization. Capex discipline (164.3 in Q1) versus D&A (227.1) indicates reinvestment at approximately 0.7x D&A in the quarter; full-year cadence will determine longer-term reinvestment versus distributions. Absent large acquisitions or unexpected cost shocks, the current dividend policy appears sustainable.

Risk Assessment

Business risks include Commodity and packaging input inflation (sugar, coffee, PET resin, aluminum) pressuring gross margin, FX and geographic mix effects impacting reported margins and OCI, Execution risk in scaling Oceania rapidly while preserving margins, Competitive pricing pressure in Japan weighing on segment profitability, Innovation and brand investment effectiveness to sustain pricing power.

Financial risks include Working capital volatility (inventory build and payable normalization) weakening cash conversion, Lease commitments adding to fixed cost base under IFRS 16, Intangibles concentration at 25.8% of assets increasing sensitivity to brand performance, Dividend outflows exceeding quarterly FCF in seasonally weak cash quarters.

Key concerns include High inventory days (214) elevate obsolescence and carrying cost risk, Elevated tax burden metric (NI/EBT 0.552) driven by higher non-controlling interests reduces owners’ profit conversion, ROIC at 1.4% in the quarter is below the 5% benchmark, indicating pressure on capital efficiency until margins recover.

Investment Implications

Key takeaways include Strong top-line growth (+11.2%) with margin compression; operating profit flat YoY, Gross margin down ~130 bps; SG&A ratio improved ~60 bps, signaling partial operating leverage, OCF/NI 1.38x and negative accruals support high earnings quality despite working capital drag, Europe and Asia remain profit pillars with double-digit margins; Japan margin softness persists, Oceania’s scale-up is a key growth vector with improving profitability, Progress vs. full-year guidance lags typical Q1 run-rate, highlighting need for H2 margin catch-up, Balance sheet strength (equity ratio 60%, D/E 0.52x) provides resilience and dividend capacity.

Metrics to watch include Operating margin trajectory and gross margin recovery, Working capital metrics: inventory days and payables trends, Price/mix realization versus input cost inflation, OCF/EBITDA cash conversion and FCF coverage of dividends, Segment profitability mix, especially Japan recovery and Oceania scaling, Equity-method income stability and NCI share of profit.

Regarding relative positioning, Within beverages, the company exhibits solid brand-led growth and conservative leverage, but margins sit below best-in-class global peers; sustaining pricing power and normalizing working capital are pivotal to narrowing the profitability gap.