| Metric | Current Period | Prior-Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥675.6B | ¥671.7B | +0.6% |
| Operating Income / Operating Profit | ¥41.2B | ¥48.3B | -14.6% |
| Ordinary Income | ¥231.5B | ¥205.5B | +12.7% |
| Net Income / Net Profit | ¥27.9B | ¥30.3B | -7.9% |
| ROE | 1.3% | 1.4% | - |
Kagome Co., Ltd.'s Q1 results for the fiscal year ending March 2026 recorded Revenue ¥675.6B (YoY +¥4.0B +0.6%), Operating Income ¥41.2B (YoY -¥7.1B -14.6%), Ordinary Income not disclosed at the segment level, and Net Income ¥27.9B (YoY -¥2.4B -7.9%). Top-line slightly increased driven by growth in Overseas Business (+2.6%), but Selling, General and Administrative Expenses rose to ¥182.7B (from ¥169.5B, +¥13.2B), causing Operating Margin to decline to 6.1% (from 7.2%, -1.1pt). The main drivers compressing profit were a decline in Domestic Processed Foods Business profit (¥22.5B → ¥17.2B) and higher corporate-wide costs. The smaller decline in Net Income (-7.9%) reflects a tax burden around an effective tax rate of ~20% on Ordinary Income ¥231.5B (pre-corporate tax adjustments). Operating Cash Flow was ¥-187.4B (worse from ¥-42.4B) driven mainly by an inventory increase of ¥404.4B, expanding cash outflows, and Free Cash Flow was ¥-289.6B, showing strain. Progress against full-year plan (Revenue ¥3,100B, Operating Income ¥230B, Net Income ¥134B) stands at Revenue 21.8%, Operating Income 17.9%, Net Income 20.8% (calculated on parent-company attributable basis excluding non-controlling interests: 15.3%), all below the standard Q1 benchmark (25%), suggesting a back-loaded earnings profile.
[Revenue] Revenue ¥675.6B represented a slight YoY increase of +0.6%. By segment, Domestic Processed Foods Business was ¥334.0B (-0.2%), Domestic Other Business ¥50.9B (-4.9%), and Overseas Business ¥290.7B (+2.6%). Overseas growth was supported by FX effects and expanded sales of processed tomato products, while Domestic Processed Foods saw weak sales in beverages and seasonings. Price revision effects were limited and Gross Profit Margin remained unchanged (Gross Profit ¥217.0B, Gross Margin 32.1% unchanged from prior year), thus contribution to top-line growth was limited. Progress vs. full-year target of ¥3,100B is 21.8%, below the standard Q1 level (25%).
[Profitability] Operating Income decreased to ¥41.2B (-14.6%), with Operating Margin falling to 6.1% (from 7.2%). Gross Profit was nearly flat at ¥217.0B, but SG&A rose to ¥182.7B (from ¥169.5B, +¥13.2B +7.8%), increasing SG&A ratio to 27.0% (from 25.2%, +1.8pt). Segment (business) profit fell sharply to ¥34.4B (from ¥46.4B, -25.9%): Domestic Processed Foods Business profit ¥17.2B (from ¥22.5B, -23.6%), Overseas Business profit ¥28.9B (from ¥30.8B, -6.2%), Others -¥1.3B (from +¥0.7B, turning to loss). Higher promotional, logistics, and personnel costs pressured earnings, and corporate common costs increased (adjustment -¥10.5B, prior year -¥7.7B). Equity-method investment income was a loss of -¥0.5B, while Other Operating Income totaled ¥8.99B (mainly government subsidies and gains on sale of affiliate shares). On the operating income line, this resulted in a YoY decline of -14.6%. Ordinary Income ¥231.5B is the sum of operating and non-operating income before corporate tax adjustments, and Net Income ¥27.9B comprises parent-company attributable ¥20.6B + non-controlling interests ¥7.3B. Extraordinary gains/losses were not explicitly stated, but one-off items such as temporary government subsidies and investment gains are included in Other Operating Income/Expenses; sustainable earning power should be assessed at the business profit (segment profit) level. Overall, the quarter saw revenue growth but profit decline, with rising costs constraining profit expansion.
Domestic Processed Foods Business: Revenue ¥334.0B (-0.2%), Business Profit ¥17.2B (-23.6%), Business Profit Margin fell to 5.2% (from 6.7%, -1.5pt). Weak beverage and seasoning sales and increased promotional spending pressured profits. Overseas Business: Revenue ¥290.7B (+2.6%), Business Profit ¥28.9B (-6.2%), Business Profit Margin 10.0% (from 10.9%, -0.9pt). Increased sales of tomato paste and pizza sauce supported revenue growth, but higher raw material and energy costs and FX impacts slightly reduced margins. Others: Revenue ¥50.9B (-4.9%), Business Profit -¥1.3B (from +¥0.7B, turned to loss), affected by weak domestic agriculture & seedling business and upfront investments in new businesses. The ¥6.8B gap between total segment profit ¥34.4B and Operating Income ¥41.2B reflects net Other Operating Income/Expenses (e.g., government subsidies). Both Domestic Processed Foods and Overseas segments underperformed vs. prior year, indicating an urgent need to improve the revenue structure.
[Profitability] Operating Margin 6.1% declined -1.1pt from 7.2%, mainly due to rising SG&A ratio (27.0% vs. 25.2%). ROE is 1.3% (approximately 5.2% annualized), highlighting low profitability. DuPont decomposition: Net Profit Margin 4.1% (Net Income ¥27.9B / Revenue ¥675.6B), Total Asset Turnover 0.19x (annualized ~0.75x), Financial Leverage 1.69x (Total Assets ¥360.0B / Net Assets ¥213.3B) — indicating considerable room for improvement in both profitability and efficiency. [Cash Quality] Operating Cash Flow (OCF) was ¥-187.4B (from ¥-42.4B), worsening significantly, with OCF/Operating Income at -4.5x indicating poor cash quality. EBITDA (Operating Income ¥41.2B + Depreciation ¥34.6B) is ¥75.8B, but OCF/EBITDA is -2.5x due to working capital deterioration (Inventory increase ¥404.4B, Accounts Receivable slight decrease ¥0.7B, Accounts Payable increase ¥9.7B) causing cash outflow. The negative OCF is primarily driven by inventory increases and raises concerns over inventory turnover. [Investment Efficiency] ROIC (NOPAT / Invested Capital) not disclosed, but estimated NOPAT ≒ Operating Income ¥41.2B × (1 - effective tax rate 20%) ≒ ¥33.0B. Invested capital (Interest-bearing debt ¥761.1B + Net Assets ¥2,133B) = ¥2,894B, implying an annualized ROIC of about 4.6%, below estimated cost of capital. Capital expenditure ¥57.9B is 1.7x Depreciation ¥34.6B, indicating continued growth investment. [Financial Soundness] Equity Ratio 52.6% improved from 50.7%, indicating a stable financial base. Interest-bearing debt ¥761.1B (short-term borrowings ¥509.0B + long-term borrowings ¥252.1B), Cash ¥152.3B, Net Interest-Bearing Debt ¥608.8B. Debt/EBITDA annualized assumed ≈ 2.0x (assuming EBITDA ¥75.8B ×4 = ¥303B), not excessive, but refinancing capacity should be monitored given continued negative OCF. Current Ratio 195% (Current Assets ¥1,965B / Current Liabilities ¥1,006B) indicates good liquidity.
Operating Cash Flow was ¥-187.4B (worsened by ¥-145.0B from prior year ¥-42.4B), a substantial cash outflow. The subtotal at the operating level was positive ¥115.6B (prior year ¥112.0B), but corporate tax and other payments ¥83.9B, interest payments ¥14.6B, and Working Capital changes totaling ¥-218.3B (Inventory increase ¥404.4B, Accounts Receivable decrease ¥0.7B, Accounts Payable increase ¥9.7B net) heavily strained OCF. The Inventory increase of ¥404.4B appears mainly due to increased stockpiling tied to harvest timing in Overseas Business (tomato paste, etc.), and while partly seasonal for Q1, prolonged inventory turnover deterioration poses profitability and cash-efficiency risks. Investing Cash Flow was ¥-102.3B, reflecting CapEx ¥57.9B and acquisition of subsidiary shares ¥43.3B (expanding consolidation scope), indicating continued growth investment. Free Cash Flow was ¥-289.6B (OCF -¥187.4B + Investing CF -¥102.3B), a large deficit funded by Financing Cash Flow. Financing Cash Flow was +¥228.4B (prior year +¥94.8B), comprising long-term borrowings +¥633.5B, long-term borrowings repayments -¥346.2B, net short-term borrowings decrease -¥63.1B, dividend payments -¥42.8B, and share buybacks -¥13.4B. Consequently, Cash and Cash Equivalents fell to ¥152.3B (from ¥268.4B, down ¥116.1B), reducing on-hand liquidity. While OCF negativity is largely due to seasonal working capital factors, inventory drawdown and accounts receivable collection in H2 will be key to normalizing liquidity.
Assessing quality of earnings: of Operating Income ¥41.2B, Business Profit accounted for ¥34.4B, meaning ¥6.8B relied on Other Operating Income (government subsidies, gains on sale of affiliate shares, etc.), so sustainable earning power should be judged at the business profit level. Equity-method investment income -¥0.5B is minor. Other Operating Income ¥8.99B includes one-off items (e.g., government subsidies ¥1.2B). Non-operating results show Financial Income ¥0.53B and Financial Expenses ¥7.21B (mainly interest), net -¥6.68B, indicating interest burden on interest-bearing debt ¥761B weighs on earnings. The relationship between Ordinary Income ¥231.5B (there may be a typographical discrepancy in presentation; actual figure is estimated around ¥35.9B) and corporate tax expense ¥8.1B yields Net Income ¥27.9B, implying an effective tax rate ~22%, which is standard. Comprehensive Income ¥59.3B (Net Income ¥27.9B + Other Comprehensive Income ¥31.5B) includes translation adjustments ¥22.8B and Cash Flow Hedge ¥8.7B valuation gains, exceeding Net Income. OCF ¥-187.4B diverges significantly from Net Income ¥27.9B, with Accruals (difference between accrual profit and cash) at -¥215.3B, largely due to inventory increases and working capital deterioration. While high accruals may be seasonal, persistence would raise concerns about earnings quality.
Full-year forecast remains Revenue ¥3,100B (YoY +8.0%), Operating Income ¥230B (+13.2%), Net Income ¥134B (+4.7%, parent-company attributable), with no revisions. Q1 progress rates are Revenue 21.8%, Operating Income 17.9%, Net Income 20.8% (parent-company attributable ¥20.6B / ¥134B), all below the standard 25%. The lag in Operating Income progression is mainly due to higher SG&A and reduced profit in Domestic Processed Foods; achieving the full-year targets assumes cost controls in H2 and profit contribution from Overseas Business. Dividend forecast unchanged at annual ¥58 (interim ¥29, year-end ¥29). Q1 dividend payment ¥42.8B (payment of prior-year year-end dividend) is within plan. To meet the full-year target, H2 must deliver Operating Income ¥188.8B (Full-year ¥230B - Q1 ¥41.2B), which exceeds the prior-year H2 performance (Full-year ¥203.2B - Q1 ¥48.3B = ¥154.9B) by +21.9%, representing a high hurdle. Sales-wise, domestic price revision effects and harvest-season demand in Overseas Business, alongside efficiency gains in promotional and logistics spending, are key.
Dividend policy is maintained at annual ¥58 (prior-year ¥58), and with forecast EPS ¥147.47, the Payout Ratio is 39.3%, indicating stability. In Q1, the company paid prior-year year-end dividends ¥42.8B and conducted share buybacks ¥13.4B. Total shareholder returns (dividends ¥42.8B + buybacks ¥13.4B) totaled ¥56.2B, funded largely by increased debt and cash drawdown given Free Cash Flow ¥-289.6B. Evaluated against OCF, Operating Cash Flow ¥-187.4B could not cover dividend payments, making financing activities necessary. However, Q1 OCF tends to be negative seasonally, and on a full-year basis OCF positivity and dividend sustainability are supported to some extent by on-hand cash ¥152.3B and borrowing capacity. Share buybacks appear aimed at improving capital efficiency and supporting share price, but attention is needed on the balance between rising leverage and declining liquidity. Total Return Ratio (dividends + buybacks / Net Income) is estimated at about 50% annualized, suggesting a policy prioritizing both shareholder returns and growth investment.
Liquidity squeeze risk from working capital deterioration: Inventory increase ¥404.4B led to OCF ¥-187.4B and reduced cash to ¥152.3B (from ¥268.4B, -43.2%). Cash coverage of short-term borrowings ¥509.0B is only 30%; if H2 inventory consumption and receivable collection are delayed, additional borrowings or asset sales may be required. Inventory turnover days are long: Inventory ¥1,173B / Annualized Revenue ¥2,702B × 365 ≒ 158 days, far exceeding the food-industry standard (60–90 days).
Profitability risk from rising SG&A ratio: SG&A ratio at 27.0% (from 25.2%, +1.8pt) reflects structural increases in promotional, logistics, and labor costs. With Revenue growth at +0.6% and SG&A increase +7.8%, operating leverage has reversed; without successful price revisions or promotional efficiency improvements, Operating Margin could decline further and achieving the full-year Operating Income margin target (7.4%) will be difficult.
Earnings volatility risk in Overseas Business: Overseas Business delivered Business Profit ¥28.9B (Business Profit Margin 10.0%) but remains sensitive to crop yields, raw material prices (tomatoes, etc.), and FX volatility (USD/EUR). Goodwill ¥143.2B (up from ¥113.8B, +25.9%) reflects active M&A; delays in integration or failure to realize synergies could trigger impairment risks. FX effects, as evidenced by translation gains in Comprehensive Income (¥22.8B), can raise yen valuations of overseas assets but also increase imported raw material costs, so net benefit is limited.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.1% | – | – |
| Net Profit Margin | 4.1% | – | – |
Industry median data are limited; evaluation remains primarily company-specific.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 0.6% | – | – |
Revenue growth +0.6% is modest, reflecting stagnant demand in the food industry and intensified price competition.
※ Source: Company aggregation
Priority is to normalize OCF and inventory management: Inventory increase ¥404.4B led to OCF ¥-187.4B and cash decline to ¥152.3B (YoY -43.2%). H2 inventory drawdown and receivable collection will determine liquidity and sustainability of shareholder returns. Inventory turnover days of 158 significantly exceed industry norms; improving demand forecasting accuracy and supply-chain efficiency is urgent.
Containing SG&A ratio and restoring operating leverage is key: SG&A ratio rose to 27.0% (from 25.2%), lowering Operating Margin to 6.1% (from 7.2%). Achieving full-year Operating Income ¥230B (margin 7.4%) requires lowering H2 SG&A into the mid-24% range through promotional efficiency and cost control. Correcting the inverse leverage (Revenue +0.6% vs. SG&A +7.8%) is a focal point for investors.
Balancing Overseas Business contribution and financial leverage: Overseas Business remains a high-margin contributor (Business Profit ¥28.9B, margin 10.0%) and is expected to drive full-year performance. However, aggressive M&A (Goodwill ¥143.2B, +25.9%) has increased leverage (Interest-bearing debt ¥761.1B; Debt/EBITDA annualized ~2.0x), so balancing growth investment and financial soundness is critical. FX effects (translation adjustment +¥22.8B in Comprehensive Income) can produce short-term valuation gains but structural profit improvements require synergy realization and cost competitiveness.
This report is an earnings analysis document automatically generated by AI from XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the firm from publicly disclosed financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.