House Foods Group Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥153.60B
• Operating Income: ¥5.87B
• Net Income: ¥6.15B
• EPS: ¥60.02

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: A mixed FY2026 Q2—core operations weakened sharply, but one-time gains lifted net profit slightly YoY, raising quality concerns. Revenue declined 0.9% YoY to 1,536.0, with operating income falling 36.6% to 58.7 as operating deleverage intensified. Gross profit was 558.3 (gross margin 36.3%), while SG&A of 499.6 (32.5% of sales) compressed operating margin to 3.8%. Ordinary income dropped 33.1% to 64.5, but profit before tax jumped to 101.4, implying material special gains between ordinary and pre-tax lines. Net income improved 1.6% YoY to 56.0 (net margin 3.6%), aided by those non-recurring items despite a high effective tax rate of 39.3%. Operating margin contracted by about 215 bps YoY (from ~6.0% to 3.8%), and ordinary margin compressed by ~202 bps (from ~6.2% to 4.2%), while net margin expanded modestly by ~9 bps due to special factors, not core recovery. Earnings quality is soft: OCF/NI at 0.78 is below the 0.8 threshold, indicating working capital drag and/or reliance on non-cash/non-operating supports. Free cash flow (proxied as OCF minus capex) was negative at roughly -19.4, with shareholder returns (buybacks of 44.9) and financing outflows (-103.4) covered by the sizable cash balance (cash and deposits 856.2). Capital efficiency is weak: ROE is 1.8% and ROIC 1.5%, both below food peers’ norms and well below management-style targets for value creation. The balance sheet is robust (current ratio 314%, D/E 0.33x, interest coverage 29.5x), limiting financial risk despite weaker profits. Non-operating income (14.5) and a large gap between ordinary income and PBT suggest one-time gains that are unlikely to recur, making the net profit trajectory vulnerable. With revenue soft and SG&A heavy, operating leverage is currently negative; absent cost relief or pricing gains, core profitability is at risk of further pressure. Dividend payout looks elevated at a calculated 84.4% against negative FCF, implying dependence on balance sheet strength for distributions. Forward-looking, stabilization hinges on cost normalization (ingredients and logistics), pricing retention, and working capital discipline to restore OCF above NI. Overall, defensive liquidity offsets cyclical headwinds, but improving core margins and cash conversion is essential to sustain returns.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.8% = Net Profit Margin 3.6% × Asset Turnover 0.362 × Financial Leverage 1.33x. The biggest negative driver versus prior year is the margin component at the operating/ordinary level (operating margin down ~215 bps; ordinary margin down ~202 bps), even though the bottom-line net margin was flattered slightly by special gains. Asset turnover at 0.362 is low for a branded foods company, reflecting a sizable cash/investment securities base and relatively subdued sales progression. Financial leverage at 1.33x is conservative, limiting ROE uplift from gearing; this is deliberate but constrains returns. Business drivers: cost inflation and/or mix shift likely compressed operating margins, with SG&A at 32.5% of sales limiting flow-through; ordinary profit was further pressured but offset by non-operating income and extraordinary gains. Sustainability: the net margin improvement is not sustainable absent recurring earnings support; the core margin compression appears cyclical/structural and requires pricing, mix, or cost actions to reverse. Concerning trends: operating income fell faster than revenue (–36.6% vs –0.9%), indicating negative operating leverage; SG&A control looks insufficient relative to demand softness; ROIC at 1.5% is below cost of capital and a clear warning sign.

Growth Assessment

Top-line declined 0.9% YoY to 1,536.0, suggesting soft consumer demand and/or price/mix normalization. Operating income dropped 36.6% to 58.7, implying significant deleverage as gross margin (36.3%) could not offset fixed cost load. Ordinary income fell 33.1% to 64.5, while PBT surged to 101.4 on special gains; net income rose 1.6% to 56.0, not reflective of underlying trend. Current operating margin of 3.8% compares unfavorably with the implied prior ~6.0%, and EBITDA margin is 8.1%, underscoring compressed profitability. Non-operating income (14.5) and the gap to PBT point to one-offs as the main driver of net resilience. Near-term outlook hinges on cost inputs (spices, dairy, packaging, energy) and FX for imported materials; sustained pricing power is needed to rebuild margins. With ROIC at 1.5%, incremental growth investment should be disciplined until returns normalize. We expect muted revenue growth near term with gradual recovery contingent on cost tailwinds and tighter SG&A control.

Financial Health

Liquidity is strong: current ratio 314% and quick ratio 278%, with cash and deposits of 856.2 comfortably exceeding current liabilities of 571.5. Solvency is conservative: D/E 0.33x and interest coverage 29.5x, indicating ample debt service capacity. Maturity mismatch risk is low given current assets of 1,794.2 vs current liabilities 571.5; short-term loans are 65.6 against cash 856.2. Long-term loans are modest at 57.4; no red flags on refinancing. No off-balance sheet obligations are disclosed in the provided data. Equity is substantial at 3,183.6, with retained earnings 2,358.3 supporting financial flexibility.

Cash Flow Quality

OCF of 43.4 versus net income of 56.0 yields OCF/NI of 0.78, below the 0.8 threshold and flagging potential quality issues. Given D&A of 65.2, the weak OCF implies unfavorable working capital movements and/or other non-cash items offsetting D&A. With capex of 62.8, proxy FCF (OCF – capex) is about -19.4, indicating internal cash generation did not cover reinvestment. Financing outflows of -103.4 (including share repurchases of -44.9) were funded from the large cash balance, not from current-period FCF. We see no clear signs of aggressive working capital manipulation in the data, but the OCF shortfall versus NI warrants monitoring of inventories (205.6) and receivables (537.8) turnover in subsequent quarters.

Dividend Sustainability

The calculated payout ratio of 84.4% appears high relative to depressed core earnings and negative proxy FCF. Total dividends paid are unreported; however, combined shareholder returns including buybacks (44.9) exceeded proxy FCF, implying reliance on cash reserves. The balance sheet can support distributions near term, but without an improvement in OCF and operating margin, sustaining an 80%+ payout risks crowding out reinvestment. Policy outlook likely emphasizes stability, yet prudence suggests moderating buybacks until FCF turns positive and ROIC improves.

Risk Assessment

Business Risks:

• Raw material and packaging cost inflation pressuring gross margins
• FX volatility on imported ingredients affecting COGS
• Demand softness in core domestic categories leading to negative operating leverage
• Execution risk on SG&A efficiency and cost pass-through
• Potential slowdown or margin pressure in overseas businesses (e.g., tofu, spices)

Financial Risks:

• Earnings quality risk: OCF/NI at 0.78 and reliance on special gains
• Capital efficiency risk: ROIC at 1.5% below cost of capital
• Dividend and buyback coverage risk given negative proxy FCF
• Tax rate volatility (effective tax at 39.3%) affecting net margin

Key Concerns:

• Operating margin compressed by ~215 bps YoY
• Ordinary profit down 33.1% YoY despite non-operating support
• Net income resilience driven by one-time gains between ordinary and pre-tax
• Working capital drag implied by OCF below NI despite sizable D&A

Investment Implications

Key Takeaways:

• Core profitability weakened materially; net profit held up due to non-recurring gains
• Cash-rich, low-leverage balance sheet mitigates near-term financial risk
• Earnings quality and capital efficiency are the primary issues (ROE 1.8%, ROIC 1.5%)
• Negative proxy FCF with high payout and buybacks is not sustainable without margin/OCF recovery

Metrics to Watch:

• Operating margin and SG&A ratio trajectory
• OCF/NI and working capital turns (AR and inventory)
• Pricing execution vs input cost inflation and FX (USD/JPY, raw materials)
• Extraordinary gains/losses to gauge recurrence risk
• ROIC and asset turnover improvements
• Capex discipline and shareholder return pace

Relative Positioning: Versus domestic packaged food peers, the company exhibits stronger liquidity and lower leverage but weaker capital efficiency (low ROE/ROIC) and softer recent operating momentum; sustained improvement requires cost normalization and disciplined SG&A to close the profitability gap.

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