Ajinomoto Co.,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥738.88B
• Operating Income: ¥81.86B
• Net Income: ¥56.73B
• EPS: ¥52.18

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Ajinomoto delivered a resilient FY2026 Q2 with stable profitability and strong cash conversion despite slight top-line softness. Revenue was 7,388.81 (−0.7% YoY), while net income rose to 512.45 (+2.0% YoY), indicating improved earnings efficiency. Gross profit reached 2,794.28, translating to a solid gross margin of 37.8%. Operating income was 818.64, implying an operating margin of 11.1% for the half. Net margin printed at 6.9%, supported by an effective tax rate of 29.2%. EBITDA was 1,246.31 with a 16.9% margin, underscoring robust underlying profitability. Cash generation was a highlight: operating cash flow of 932.39 exceeded net income by 1.82x, and free cash flow totaled 411.29. Balance sheet strength remained adequate with total assets of 17,446.27 and an equity ratio of 41.0%. Leverage is moderate with a D/E of 1.23x and debt/EBITDA of roughly 1.73x, leaving headroom for investment. Equity-method income was 45.27, a modest 5–6% contributor rather than a core driver. ROE came in at 6.5% via net margin 6.9% × asset turnover 0.424 × financial leverage 2.23x; ROIC of 5.8% sits below the 7–8% target zone. While SG&A details are unreported, margin performance suggests decent cost discipline and mix/pricing execution. On margins, net margin likely expanded by roughly ~20 bps YoY given revenue decline and net profit growth (estimate due to limited disclosures). Earnings quality was high with OCF notably outpacing earnings, and working capital appears well-managed given strong OCF despite lower sales. Capital allocation was shareholder-friendly (dividends 192.33 and buybacks 773.10), but outflows exceeded FCF, implying reliance on balance sheet capacity. Looking forward, sustaining ROIC improvement above 6% and balancing reinvestment with shareholder returns are key, with FX and input cost volatility being primary external variables.

Profitability Analysis

ROE decomposition: 6.5% ROE = 6.9% net margin × 0.424 asset turnover × 2.23x financial leverage. The dominant driver is the net margin, which improved as net income grew 2.0% despite a 0.7% revenue decline, implying efficiency gains and/or favorable mix/pricing. Asset turnover at 0.424 is moderate for a branded food company and likely stable; no data indicates a step-change. Financial leverage at 2.23x (assets/equity) is moderate and within sector norms; no evidence of leverage-driven ROE inflation. The biggest incremental change in the period appears to be margin resilience (estimated ~+20 bps net margin expansion), likely due to pricing carryover, input cost normalization, and improved mix in seasonings/consumer products. This improvement seems partly sustainable if pricing discipline holds and raw material inflation remains contained; however, it is susceptible to FX and commodity swings. Operating margin is 11.1%, and EBITDA margin is 16.9%, indicating healthy operating leverage; however, without SG&A detail, we cannot confirm whether cost reductions or lower marketing spend drove the gain. Concerning trends are limited, but we flag that ROIC at 5.8% is below the 7–8% management benchmark, suggesting scope for further portfolio and capital efficiency improvements. Also, given the slight revenue contraction, any outsized SG&A growth (unreported) would pressure future margins; we cannot verify this risk due to missing SG&A disclosure.

Growth Assessment

Top-line contracted slightly (−0.7% YoY), but profitability improved, demonstrating pricing/mix effectiveness and cost control. Equity-method income of 45.27 provided a small boost but is not a core growth lever. EBITDA growth (implied) and net income growth (+2.0% YoY) show operating resilience despite potential FX and input cost headwinds. With an operating margin of 11.1% and gross margin of 37.8%, the company appears to be capturing value from branded products and efficiencies. Revenue sustainability hinges on volume recovery and continued pricing carryover; current data suggests stabilization rather than acceleration. Investment levels remain active (capex 536.73), supporting medium-term capacity and productivity. Outlook: maintainable mid-teens EBITDA margin and gradual ROIC improvement toward 7–8% if top-line stabilizes and cost normalization persists; risks include FX, commodity costs, and discretionary demand in consumer foods.

Financial Health

Liquidity: Current ratio not calculable due to missing current liabilities; current assets are sizable at 7,094.24, and cash & equivalents are 1,535.59, suggesting adequate near-term liquidity. No explicit warning thresholds are breached (we cannot compute current ratio). Solvency: D/E is 1.23x, within conservative bounds (<1.5x), and equity ratio is 41.0%, indicating a balanced capital structure. Debt profile: short-term loans 58.76 are small versus current assets, limiting maturity mismatch risk; long-term loans total 2,093.48, aligning with the asset base. Debt/EBITDA of ~1.73x indicates comfortable leverage with cushion for shocks. Interest coverage is unreported; however, EBITDA scale suggests likely adequate coverage. Off-balance sheet obligations: not disclosed in the provided data. Overall, financial health is sound with moderate leverage and likely manageable refinancing needs.

Cash Flow Quality

OCF of 932.39 vs net income of 512.45 yields an OCF/NI of 1.82x, signaling high earnings quality with strong cash conversion. FCF is 411.29 after capex of 536.73, which comfortably covers the dividend of 192.33 (~2.1x) but not total shareholder returns once buybacks (773.10) are included (FCF coverage of dividends + buybacks is 0.51x). Working capital appears a positive contributor or well-controlled given OCF strength amid slightly lower sales; detailed drivers (receivables/payables) are unreported. No signs of aggressive working capital pull-forward are evident from the high OCF/NI ratio, but limited granularity tempers certainty. Cash & equivalents of 1,535.59 provide additional flexibility to bridge the gap between FCF and shareholder returns in the short term.

Dividend Sustainability

Reported payout ratio is unavailable; the calculated payout ratio of 157.0% suggests dividends exceeded accounting earnings on the reported EPS basis during the half, which is a caution flag on a pure earnings metric. However, on a cash basis, FCF of 411.29 covers dividend cash outflow of 192.33 by ~2.1x, indicating the dividend itself is currently cash-supported. Total shareholder returns (dividends + buybacks = 965.43) exceed FCF, implying reliance on balance sheet and ongoing OCF to sustain both. Policy outlook likely prioritizes stable/increasing dividends with opportunistic buybacks; sustaining both at current levels would require either higher OCF or lower capex/buybacks. Monitoring payout versus full-year earnings and cash generation is essential given the elevated interim payout ratio.

Risk Assessment

Business Risks:

• Commodity/input cost volatility (amino acids, packaging, edible oils, sweeteners) impacting gross margin
• FX fluctuations (JPY vs USD/EM currencies) affecting translation and COGS
• Demand elasticity in consumer foods amid real wage and price sensitivity in key markets
• Portfolio mix risk between consumer products and B2B ingredients affecting margins
• Potential goodwill/intangible impairment risk (goodwill 1,179.82; intangibles 898.43)

Financial Risks:

• Shareholder returns exceeding FCF (0.51x coverage of dividends+buybacks) increasing reliance on balance sheet
• ROIC at 5.8% below target range, risking value dilution if investment returns do not improve
• Interest rate and refinancing risk on 2,152+ of interest-bearing debt, though leverage is moderate
• Limited visibility on current liabilities and interest coverage due to unreported items

Key Concerns:

• Sustaining margin gains if input costs or FX move adversely
• Closing the gap between ROIC (5.8%) and cost-of-capital/management target (7–8%)
• Maintaining both dividends and sizable buybacks without stressing FCF

Investment Implications

Key Takeaways:

• Resilient profitability: operating margin 11.1%, EBITDA margin 16.9%, net margin 6.9%
• High cash conversion: OCF/NI 1.82x and FCF 411.29 despite modest revenue decline
• Moderate leverage with headroom: D/E 1.23x, debt/EBITDA ~1.73x, equity ratio 41%
• ROE 6.5% supported mainly by margins; asset turnover and leverage stable
• ROIC 5.8% below 7–8% target, highlighting need for continued portfolio/capital efficiency improvements
• Shareholder returns exceed FCF, suggesting buybacks are the swing factor relative to cash generation

Metrics to Watch:

• Price/mix vs volume trends and their impact on gross and operating margins
• Input costs (commodities) and FX rates versus pricing actions
• ROIC trajectory toward 7–8% and capital deployment discipline
• Working capital movements (inventories 3,256.17; receivables/payables not disclosed)
• Capex intensity vs growth and productivity outcomes
• Equity-method income stability and contribution
• Payout and buyback pace relative to FCF

Relative Positioning: Within Japanese branded food peers, Ajinomoto shows stronger cash conversion and solid mid-teens EBITDA margins, with moderate leverage and ample liquidity. However, ROIC at 5.8% trails best-in-class peers targeting >7–8%, and total shareholder returns currently outpace FCF, placing emphasis on sustained OCF growth and disciplined capital allocation.

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