Suntory Beverage & Food (2587) FY2026 Q2 Earnings Report

Quick View

Executive Summary

Although revenue increased, the operating margin declined, resulting in earnings that raise concerns regarding the quality of the revenue growth. Revenue was ¥8,998.8B (+11.6% YoY), Operating Income was ¥739.6B (+3.0%), Profit Before Tax was ¥733.2B (+4.5%), and consolidated Net Income was ¥534.1B (+2.9%), including ¥420.8B attributable to owners of the parent (+2.3%). Against an approximately ¥934B increase in revenue, the increase in Operating Income was limited to approximately ¥22B, suggesting that increases in raw material, logistics, and other costs could not be sufficiently absorbed through price revisions and product mix alone.

Factors Affecting Earnings

【Revenue】Revenue was ¥8,998.8B (+11.6% YoY), with all regions recording revenue growth. Oceania was particularly strong, growing +69.7%, while Americas (+12.5%), Asia (+12.9%), and Europe (+12.0%) also recorded double-digit growth. Domestic Japan growth was limited to +4.6%. The regional revenue composition was Japan 40.0%, Europe 23.6%, Asia 18.8%, Americas 10.9%, and Oceania 6.7%, with overseas markets accounting for approximately 6割.

【Profit and Loss】Operating Income was ¥739.6B (+3.0%), representing 8.2% of revenue, down from approximately 8.9% in the prior year. By segment, Japan improved with profit growth of +16.8% and a margin of 5.9%, while Europe (-6.6%) and Asia (-0.8%) recorded lower profits. Oceania achieved substantial profit growth of +156.2%, although its scale remains small. While the gross margin was maintained at 37.0%, the SG&A ratio rose to 28.5% YoY, putting pressure on the operating margin. Profit Before Tax increased +4.5%, exceeding Operating Income growth, but Net Income after income taxes increased only +2.9%, while Net Income attributable to owners of the parent slowed to +2.3%. Thus, although both revenue and profit increased, profit growth remained below revenue growth.

Segment Analysis

Europe recorded Revenue of ¥2,119.4B (23.6% of total, +12.0% YoY) and was the largest contributor to profit. Its Operating Income was ¥302.7B, with a margin of 14.3%, the highest level among all regions; however, profit declined by -6.6% YoY. Japan had the largest revenue scale, with Revenue of ¥3,600.9B (40.0% of total, +4.6%), but its margin was the lowest among all regions at 5.9%; profit nevertheless improved by +16.8%. Asia recorded Revenue of ¥1,696.0B (+12.9%) and a stable margin of 11.7%, although profit declined slightly (-0.8%). Americas had a margin of 10.4% and was essentially flat (+0.1%). Oceania remains small in scale but is expanding rapidly, with revenue up +69.7% and profit up +156.2%; its margin also improved to 8.7%. Profitability trends differ across regions, and the decline in Europe’s margin and improvement in Japan’s margin will influence the future direction of earnings.

Key Financial Metrics

【Profitability】The 8.2% operating margin declined from approximately 8.9% in the same period of the prior year. Although the gross margin was maintained at 37.0%, the increase in the SG&A ratio to 28.5% put pressure on profitability. The consolidated Net Income margin was 5.9%. 【Cash Quality】Operating Cash Flow (OCF) was ¥711.7B, equivalent to 1.69 times Net Income attributable to owners of the parent of ¥420.8B and 1.33 times consolidated Net Income of ¥534.1B, indicating good cash conversion. 【Investment Efficiency】ROE was 3.6%; as a cumulative-period figure, this is a level requiring monitoring from a capital-efficiency perspective. Total assets increased +3.5% YoY to ¥22,949.5B. 【Financial Soundness】The Equity Ratio remained high at 59.0%. Interest-bearing debt was limited to ¥155.4B current and ¥4.7B non-current, indicating a conservative financial base.

Cash Flow Analysis

OCF was ¥711.7B, a significant increase of +69.6% YoY, equivalent to 1.69 times Net Income attributable to owners of the parent of ¥420.8B. From OCF before adjustments of ¥892.0B, increases in inventories of ¥212.7B, increases in other working capital, income taxes paid of ¥174.9B, interest paid of ¥17.8B, and lease payments of ¥68.8B were deducted, resulting in OCF of ¥711.7B. The increase in inventories appears to reflect working capital requirements associated with revenue growth, and inventory turnover trends in the second half warrant attention. Investing Cash Flow was an outflow of ¥338.5B, most of which, ¥349.1B, represented capital expenditures directed toward maintaining and expanding the business platform. Free Cash Flow was ¥373.2B (OCF of ¥711.7B + Investing Cash Flow of △¥338.5B), exceeding dividend payments of ¥185.4B by ¥187.8B. Financing Cash Flow was an outflow of ¥279.5B, primarily due to dividend payments; no share repurchases were conducted. Cash and cash equivalents accumulated to ¥1,598.2B.

Quality of Earnings

Profit Before Tax of ¥733.2B was close to Operating Income of ¥739.6B. The net amount of financial income of ¥11.8B and financial expenses of ¥18.2B was only slightly negative, indicating limited special upward or downward effects from non-operating income and expenses. Against Profit Before Tax growth of +4.5%, Net Income after taxes increased +2.9%, while Net Income attributable to owners of the parent increased +2.3%; profit growth progressively diminished due to the effects of the tax burden and deductions for non-controlling interests. The consolidated effective tax rate was approximately 27.2%, a typical level for a Japanese company. OCF reached 1.69 times Net Income attributable to owners of the parent, generating cash exceeding profit despite the temporary cash outflow associated with the increase in inventories. There are few signs that accounting profit is excessively dependent on uncollected revenue. Of total comprehensive income of ¥703.0B, ¥568.3B was attributable to owners of the parent, exceeding Net Income of ¥420.8B, with foreign currency translation adjustments and other comprehensive income contributing additional gains.

Earnings Forecast and Guidance

Progress against the full-year earnings forecast was 49.3% for Revenue (actual ¥8,998.8B / forecast ¥18,260.0B), 47.7% for Operating Income (actual ¥739.6B / forecast ¥1,550.0B, forecast +4.2% YoY), and 48.3% for Net Income (actual ¥534.1B / forecast ¥1,105.0B). All were slightly below the standard 50% progress level, but the deviations were limited to several percentage points. Improving SG&A efficiency and cost absorption capacity in the second half will be key to achieving the plan. Neither the earnings forecast nor the dividend forecast was revised in this quarter.

Shareholder Returns

The annual dividend forecast is ¥120.00 per share. As of Q2, the interim dividend was ¥60.00 (dividend payments of ¥185.4B based on 3.09億 shares outstanding), equivalent to 50% of the full-year forecast. The Payout Ratio was 44.1%, calculated as dividend payments of ¥185.4B divided by Net Income attributable to owners of the parent of ¥420.8B, below the general sustainability benchmark of approximately 60% for a dividend-only measure. No share repurchases were conducted, and the Total Return Ratio was therefore identical to the Payout Ratio at 44.1%. Free Cash Flow of ¥373.2B was 2.01 times dividend payments of ¥185.4B, indicating that dividends can be fully covered by internally generated funds.

Risk Factors

1. Raw Material, Logistics Cost, and Foreign Exchange Risks: The operating margin declined by approximately 0.7pt YoY to 8.2%. Although the gross margin was maintained at 37.0%, the increase in the SG&A ratio to 28.5% put pressure on profit. Fluctuations in raw materials, packaging materials, energy, logistics costs, and foreign exchange rates may not have been sufficiently absorbed through price pass-through.

2. Weak Conversion of Revenue Growth into Profit: Revenue increased +11.6%, while Operating Income increased only +3.0% and Net Income attributable to owners of the parent increased only +2.3%. The company’s ability to convert revenue growth into profit growth will remain under scrutiny depending on sales volume and product mix trends following price revisions.

3. Increase in Working Capital: Inventories increased by ¥212.7B, becoming a factor that reduced OCF together with changes in other working capital. If demand falls below expectations, this could lead to deterioration in inventory turnover and inventory write-down risk, making inventory and accounts receivable trends in the second half important to monitor.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Because comparable median data for the company’s operating margin and Net Income margin in the food and beverage industry is not yet sufficiently developed, no definitive statement is made regarding relative positioning.

Growth and Capital Efficiency

The Revenue Growth Rate of 11.6% represents double-digit growth and is considered to be among the higher revenue growth rates within the industry.

※Source: Company research

Key Takeaways from the Results

1. While Revenue secured double-digit growth of +11.6% YoY, the operating margin declined to 8.2%, making the insufficient conversion of revenue growth into profit growth a defining feature of the current period. By region, the decline in Europe’s margin contrasts with the improvement in Japan’s margin, and the direction of segment profitability in the second half will be closely watched.

2. OCF was secured at ¥711.7B, equivalent to 1.69 times Net Income attributable to owners of the parent, while Free Cash Flow also exceeded twice dividend payments, demonstrating good cash conversion and cash generation capacity. Together with an Equity Ratio of 59.0% and low interest-bearing debt, the financial base remains conservative.

3. Progress against the full-year plan was 49.3% for Revenue, 47.7% for Operating Income, and 48.3% for Net Income, all slightly below standard progress levels. There were no revisions to the dividend or earnings forecasts, and progress in cost absorption capacity and cost-efficiency improvements in the second half will be key to achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,983–¥4,214 for Cost of Equity ±1%, and ¥4,087–¥4,103 for ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end 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 solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not 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. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2026 Q2 performance was solid on revenue growth and cash generation, although operating-profit conversion lagged sales growth. Revenue increased 11.6% YoY to ¥899.9bn, while operating income rose 3.0% to ¥74.0bn and profit attributable to owners increased 2.3% to ¥42.1bn. The revenue result has reached 49.3% of the FY2026 sales forecast of ¥1,826.0bn, broadly in line with the 50% first-half seasonal benchmark. Operating income has reached 47.7% of the ¥155.0bn full-year forecast, a modest 2.3 percentage-point shortfall versus the standard 50% progress rate. Profit attributable to owners has reached 47.3% of the ¥89.0bn forecast, also slightly below the midyear benchmark. Gross profit grew 8.2% YoY to ¥332.7bn, slower than revenue, and the gross margin contracted 110bp to 37.0% from 38.1%. SG&A increased 9.9% YoY to ¥256.4bn, below revenue growth but above gross-profit growth, resulting in operating-margin compression of 70bp to 8.2%. The 8.2% operating margin remains within the "good" benchmark range, but the margin trajectory shows that input, manufacturing, distribution, and brand-investment costs absorbed much of the top-line expansion. Profit before tax increased 4.5% to ¥73.3bn, faster than operating income, supported by lower finance costs of ¥1.8bn versus ¥3.0bn in the prior year. Operating cash flow was strong at ¥71.2bn, exceeding profit attributable to owners by 1.69x and supporting the quality of reported earnings. Free cash flow was ¥37.3bn after ¥34.9bn of capital expenditure and covered cash dividends of ¥18.5bn by 2.01x. Inventory increased by ¥23.5bn YoY to ¥161.1bn, and the first-half cash flow absorbed ¥21.3bn through inventory build, consistent with a need to monitor seasonal stock levels and working-capital discipline. The balance sheet remains conservatively financed, with a 59.0% equity ratio and a 0.56x debt-to-equity ratio. The main forward implication is that management needs second-half margin recovery, rather than further sales growth alone, to deliver its operating-income target. No revision was made to either earnings guidance or the dividend plan, indicating that management continues to expect the second half to close the modest first-half profit-progress gap.

Profitability Analysis

The reported annualized DuPont ROE is 5.7%, comprising a 4.7% net profit margin, 0.784x asset turnover, and 1.56x financial leverage. The principal constraint on ROE is profitability rather than balance-sheet leverage: financial leverage is moderate and asset turnover is reasonable for a beverage producer with a substantial manufacturing and brand-asset base. The 4.7% net margin is below the 5-10% benchmark range and reflects the 8.2% EBIT margin combined with a 0.574 tax burden. Gross margin declined 110bp YoY to 37.0%, while operating margin declined 70bp to 8.2%, demonstrating partial rather than full absorption of cost inflation through pricing, mix, or productivity. SG&A grew 9.9% YoY, slower than the 11.6% increase in revenue, which indicates some operating-cost discipline. However, SG&A exceeded the 8.2% growth in gross profit, so the gross-profit pool available after production costs did not expand sufficiently to deliver operating leverage. Finance costs declined ¥1.2bn YoY, and the interest burden of 0.991 indicates that financing costs have only a limited effect on pre-tax profitability. The tax-burden alert requires careful interpretation: the 0.574 tax burden is calculated using profit attributable to owners of ¥42.1bn divided by consolidated profit before tax of ¥73.3bn, which includes earnings attributable to non-controlling interests. On a consolidated basis, income-tax expense of ¥19.9bn represents a 27.2% effective tax rate on ¥73.3bn of pre-tax profit, rather than a tax rate above 40%. Nevertheless, the low owner-level tax-burden metric reduces reported owner ROE and means that the allocation of consolidated earnings to non-controlling interests remains relevant to shareholder-level returns. Sustainability of margin recovery depends on pricing realization, product and channel mix, commodity and packaging costs, and logistics productivity in the second half.

Growth Assessment

Revenue growth of 11.6% YoY was robust, adding ¥93.5bn of sales versus FY2025 Q2. Growth translated into only ¥2.1bn of additional operating income, however, producing an incremental operating margin of approximately 2.3% on the YoY revenue increase. This conversion rate is materially below the reported 8.2% operating margin and points to cost pressure or elevated growth investment. The full-year plan calls for revenue of ¥1,826.0bn and operating income of ¥155.0bn, implying second-half revenue of ¥926.1bn and operating income of ¥81.0bn. The implied second-half operating margin is approximately 8.7%, above the 8.2% first-half margin, so delivery requires around 50bp of sequential margin improvement. Full-year profit attributable to owners guidance of ¥89.0bn implies ¥46.9bn in the second half, 11.4% above the first-half result. The planned full-year operating-income growth rate of 4.2% also assumes a modest acceleration from the 3.0% first-half growth rate. The food and beverage revenue base benefits from recurring consumer demand and established distribution, but earnings remain exposed to commodity inputs, imported ingredients, packaging, energy, and freight costs. The 37.0% gross margin remains healthy for the sector, indicating meaningful brand and pricing capability despite the YoY decline. Continued revenue growth is most valuable if it is accompanied by restored gross-margin conversion and restrained SG&A growth.

Financial Health

Financial health is sound. Total equity increased ¥48.5bn YoY to ¥1,473.7bn, while the equity ratio remained high at 59.0%. Debt-to-equity of 0.56x is conservative and substantially below the 2.0x risk threshold. Interest-bearing borrowings were limited at ¥160.1bn, comprising ¥155.4bn of current borrowings and ¥4.7bn of non-current borrowings. Current liabilities, derived as total liabilities less non-current liabilities, were ¥604.6bn; therefore, the current ratio was approximately 1.31x. This is below the 1.5x healthy benchmark but above 1.0x, so it does not indicate a liquidity warning. Current assets exceeded current liabilities by approximately ¥188.3bn, providing a positive working-capital buffer. Short-term borrowings of ¥155.4bn are covered by cash and equivalents of ¥159.8bn, while receivables of ¥424.9bn provide additional liquid working-capital support. Goodwill was ¥301.3bn, equal to 20.4% of equity and 13.1% of assets, both within the healthy M&A-risk range. Intangible assets represented 24.8% of total assets, making the company IP- and brand-asset intensive but still below the 30% concentration warning threshold. Right-of-use assets were ¥65.2bn and lease payments were ¥6.9bn in the first half, which should be considered alongside reported borrowings when assessing fixed financial commitments. Deferred tax liabilities of ¥123.8bn are material relative to deferred tax assets of ¥20.5bn, but the strong equity base and cash generation support overall solvency.

Cash Flow Quality

Cash-flow quality was strong in FY2026 Q2. Operating cash flow of ¥71.2bn was 1.69x profit attributable to owners of ¥42.1bn, comfortably above the 1.0x high-quality benchmark. The negative 1.3% accruals ratio also supports cash-backed earnings rather than aggressive accrual recognition. Operating cash flow improved ¥29.2bn YoY despite higher working-capital absorption. Inventory investment absorbed ¥21.3bn of cash and other working-capital movements absorbed a further ¥11.7bn, making inventory and receivables key second-half monitoring items. The inventory cash outflow was smaller than the ¥31.1bn outflow in the prior-year period, which contributed to the improvement in cash conversion. Income taxes paid declined to ¥17.5bn from ¥22.4bn, also supporting YoY operating-cash-flow growth. Capital expenditure was ¥34.9bn, lower than ¥42.1bn in FY2025 Q2, and produced free cash flow of ¥37.3bn. Free cash flow covered dividends paid by 2.01x, leaving internal capacity for debt servicing and business investment. Investing cash flow was ¥33.9bn, broadly reflecting capital expenditure, with no sign of unusually large acquisition cash deployment. Financing cash flow was a ¥27.9bn outflow, principally reflecting dividends and lease-related funding commitments. Cash and equivalents increased ¥11.2bn YoY to ¥159.8bn, further evidencing adequate liquidity.

Dividend Sustainability

The Q2 dividend was ¥60 per share, and the unchanged full-year dividend plan is ¥120 per share. Based on first-half EPS of ¥136.17, the interim dividend represents a 44.1% payout ratio. This payout level is below the 60% sustainability benchmark and leaves a meaningful portion of earnings for reinvestment and balance-sheet resilience. Cash dividends paid were ¥18.5bn, while first-half free cash flow was ¥37.3bn, resulting in 2.01x FCF coverage. The dividend is therefore covered both by accounting earnings and by post-capex cash generation. There were no share repurchases, so the analysis remains focused on the dividend payout ratio rather than a total return ratio. The full-year planned DPS of ¥120 represents approximately 41.7% of forecast EPS of ¥288.03, consistent with a stable shareholder-return policy. Sustained dividend capacity depends on delivering the forecast second-half margin recovery and maintaining working-capital discipline, but current cash conversion and leverage are supportive.

Risk Assessment

Business risks include Margin recovery risk: first-half revenue grew 11.6% YoY but operating income increased only 3.0%, and the full-year plan requires second-half operating margin of approximately 8.7% versus 8.2% in the first half., Commodity, packaging, energy, and logistics-cost inflation risk: gross margin contracted 110bp YoY, indicating that cost increases or mix effects were not fully offset by pricing and productivity., Consumer-demand and competitive risk: beverage volumes and mix can be affected by private-brand competition, consumer preference changes, promotional intensity, and retailer bargaining power., Food safety, product-quality, labeling, and recall risk: these risks can create direct costs and harm brand equity in the food and beverage sector., Currency risk: imported ingredients, packaging inputs, and overseas operations can expose margins and translated earnings to exchange-rate movements..

Financial risks include Working-capital risk: inventories rose ¥23.5bn YoY and consumed ¥21.3bn of first-half operating cash flow; an inability to normalize inventory could reduce second-half cash conversion., Non-controlling-interest allocation risk: consolidated net income was ¥53.4bn but profit attributable to owners was ¥42.1bn, which lowers owner-level earnings conversion and the calculated tax-burden metric., Intangible-asset value risk: goodwill and intangible assets total ¥870.1bn, or 37.9% of assets, making long-term asset values dependent on sustained brand performance and cash generation., Short-term refinancing risk is limited but should be monitored: ¥155.4bn of borrowings are current, although cash of ¥159.8bn covers this amount..

Key concerns include High-tax-burden quality alert: the reported 0.574 tax burden is below the 0.60 alert threshold. Its root cause is the use of owner-attributable profit in the numerator while pre-tax profit is consolidated and includes non-controlling interests. The consolidated effective tax rate is 27.2%, so this is not evidence of an unusually high cash tax charge; its impact is lower owner-level earnings conversion and ROE., Profit-growth lag versus sales: the 70bp operating-margin decline and the low incremental operating margin indicate that revenue momentum has not yet translated into proportional profit growth., Forecast execution: operating-income progress is 47.7% and owner-profit progress is 47.3% versus the normal 50% at Q2, requiring a stronger second half without any guidance revision..

Investment Implications

Key takeaways include Top-line momentum is strong, with revenue up 11.6% YoY to ¥899.9bn., Margin conversion is the central operating issue: gross margin fell 110bp and operating margin fell 70bp YoY., Cash earnings are strong, with ¥71.2bn of operating cash flow, a 1.69x OCF-to-owner-profit ratio, and ¥37.3bn of free cash flow., Capital structure is conservative, supported by a 59.0% equity ratio, 0.56x debt-to-equity, and cash exceeding current borrowings., The ¥120 full-year dividend plan appears cash-covered and consistent with a moderate payout policy..

Metrics to watch include Second-half operating margin versus the approximately 8.7% implied by full-year guidance, Gross-margin recovery through pricing, mix, commodity costs, packaging costs, and manufacturing productivity, Inventory levels and inventory-related operating-cash-flow absorption, SG&A growth relative to gross-profit growth, particularly brand-building and distribution spending, Progress toward ¥155.0bn operating income and ¥89.0bn profit attributable to owners, Goodwill and intangible-asset performance relative to brand cash generation.

Regarding relative positioning, The company combines a healthy 37.0% gross margin, strong cash conversion, and conservative leverage with an operating margin that is solid but below the strongest branded-consumer-staples profile. Relative performance is therefore likely to be determined by the pace of gross-margin recovery and the ability to convert sales growth into operating-profit growth.