KAGOME CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Although Kagome secured revenue growth driven by the expansion of its overseas business, increases in the cost of sales and SG&A expenses put pressure on earnings, resulting in higher revenue but lower profit. Revenue was ¥1437.8B (+3.7% YoY), Operating Income was ¥90.9B (-14.5%), Profit Before Tax was ¥82.5B (-17.4%), and Net Income attributable to owners of the parent was ¥46.8B (-24.2%). The primary driver of revenue growth was +9.8% growth in the Overseas segment. While Domestic Processed Food remained largely flat (-0.2%), the +8.8% growth in SG&A expenses exceeded the revenue growth rate, causing the Operating Income margin to decline to 6.3% from 7.7% in the previous year.

Factors Affecting Financial Results

【Revenue】Revenue increased 3.7% YoY to ¥1437.8B. By segment, Domestic Processed Food was ¥730.8B (50.8% of total, YoY -0.2%), Overseas was ¥589.5B (41.0% of total, YoY +9.8%), and Other Domestic was ¥117.6B (8.2% of total, YoY -0.1%). Growth overseas drove the company-wide revenue increase, while domestic operations remained largely flat.

【Profit and Loss】Gross profit was ¥469.5B, with a gross margin of 32.7%, remaining broadly flat compared with 33.0% in the previous year. SG&A expenses were ¥385.1B (SG&A ratio of 26.8%, +1.3pt from 25.5% in the previous year). The growth rate of +8.8% exceeded the revenue growth rate of +3.7%, resulting in deterioration in operating leverage. Consequently, Operating Income was ¥90.9B (YoY -14.5%), and the Operating Income margin declined to 6.3% from 7.7% in the previous year. Equity in earnings of affiliates was a minor negative at -¥0.2B, resulting in Profit Before Tax of ¥82.5B (YoY -17.4%). Net Income attributable to owners of the parent was ¥46.8B (YoY -24.2%), with the decline from Profit Before Tax being greater than the declines in Operating Income and Profit Before Tax. This was affected by an increase in profit attributable to non-controlling interests; the effective tax rate (income taxes / Profit Before Tax) was approximately 28.1%, broadly in line with the previous year, indicating that tax rates were not the cause. Overall, the results represent higher revenue but lower profit.

Segment Analysis

The core Domestic Processed Food segment accounted for 50.8% of revenue and was largely flat at ¥730.8B (YoY -0.2%). Overseas recorded the highest growth among all segments at ¥589.5B (41.0% of total, YoY +9.8%), indicating progress in geographic revenue diversification. Other Domestic declined slightly to ¥117.6B (8.2% of total, YoY -0.1%). Although segment profit has not been disclosed, the changes in revenue composition indicate that the relative presence of the overseas business is expanding.

Key Financial Metrics

【Profitability】The Operating Income margin was 6.3%, down 1.3pt from 7.7% in the previous year, while the Net Income margin attributable to owners of the parent was 3.3%, down 1.2pt from 4.5%. Profitability deteriorated year over year on both measures.【Cash Quality】Operating Cash Flow (OCF) was ¥218.0B, approximately 4.7 times Net Income attributable to owners of the parent of ¥46.8B. Cash-generation capacity supporting earnings was strong, supported by inventory reduction and the collection of trade receivables.【Investment Efficiency】ROE was 2.7%, remaining low due to the decline in the Operating Income margin and the impact of profit attributable to non-controlling interests.【Financial Soundness】The Equity Ratio was 54.1%, improving from 50.7% in the previous year and indicating a solid capital base. However, cash and cash equivalents declined significantly to ¥145.3B from ¥268.4B in the previous year, apparently as funds were used to reduce interest-bearing debt.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥218.0B, down 10.8% YoY, but remained approximately 4.7 times Net Income attributable to owners of the parent of ¥46.8B, indicating strong cash-generation capacity supporting earnings. In terms of working capital, the decrease in inventories generated a cash inflow of +¥135.1B, while the decrease in trade payables resulted in a cash outflow of -¥69.8B, with inventory reduction and changes in payment terms offsetting each other. Investing Cash Flow was -¥90.9B, including -¥58.1B in capital expenditures and -¥43.3B in expenditures related to the acquisition of subsidiaries, consistent with the increase in goodwill (¥113.8B → ¥145.6B, +28%). Financing Cash Flow was significantly negative at -¥252.9B, primarily due to repayments and net reductions in short- and long-term borrowings, in addition to dividend payments of -¥43.6B and share repurchases of -¥13.4B. As a result, cash and cash equivalents declined to ¥145.3B at period-end. Free Cash Flow (OCF + Investing Cash Flow) was secured at ¥127.1B and functioned as a source of funds for shareholder returns and the reduction of interest-bearing debt.

Earnings Quality

The core of recurring earning power is Gross Profit and Operating Income. Equity in earnings of affiliates was a minor negative at -¥0.2B, and the difference between Profit Before Tax of ¥82.5B and Operating Income of ¥90.9B was limited. The effective tax rate (income taxes / Profit Before Tax) remained at a normalized level of approximately 28.1%, while the conversion rate from Profit Before Tax to Net Income attributable to owners of the parent declined due to the presence of profit attributable to non-controlling interests. Comprehensive Income was ¥114.8B, of which ¥94.6B was attributable to owners of the parent—¥47.8B higher than Net Income attributable to owners of the parent of ¥46.8B. This divergence resulted from positive contributions from other comprehensive income, including foreign currency translation adjustments. Since OCF substantially exceeded Net Income attributable to owners of the parent, earnings quality can be assessed as strong from an accruals perspective.

Earnings Forecast and Guidance

Progress against the full-year forecast was 46.4% for Revenue (¥1437.8B/¥3100.0B), 46.6% for Operating Income (¥90.9B/¥195.0B), and 44.6% for Net Income (on an attributable-to-owners-of-the-parent basis) (¥46.8B/¥105.0B). All were below the standard first-half progress benchmark of 50%. The full-year forecasts for both Operating Income and Net Income incorporate YoY declines (Operating Income -12.6%, Net Income -29.1%), and actual results as of the current quarter are trending in the same direction. The earnings forecast was revised during the current quarter, and control of SG&A expenses and the continuation of overseas growth in the second half will be key to achieving the full-year targets.

Shareholder Returns

The full-year dividend forecast is ¥58 per share and remains unchanged as of the current quarter. The Payout Ratio against forecast EPS of ¥116.04 is approximately 50.0% (¥58/¥116.04). During the period, the company paid ¥43.6B in dividends and conducted ¥13.4B in share repurchases, funding both within Free Cash Flow of ¥127.1B. Compared with dividend payments of ¥52.7B and share repurchases of ¥69.96B in the same period of the previous year, shareholder return expenditures declined during the current period.

Risk Factors

1. Declining profitability: The Operating Income margin was 6.3%, down 1.3pt from 7.7% in the previous year. The growth rate of SG&A expenses (+8.8%) exceeded the revenue growth rate (+3.7%), resulting in deterioration in operating leverage. Trends in SG&A expense control during the second half will be a key monitoring point.

2. Refinancing management: Short-term borrowings of ¥467.8B are approximately 3.2 times cash and cash equivalents of ¥145.3B, leaving the cash-to-short-term-borrowings ratio at approximately 0.31x. Although strong OCF of ¥218.0B provides a buffer, attention should be paid to the maturity profile of debt.

3. Increase in goodwill: Goodwill increased +27.9% from ¥113.8B to ¥145.6B in connection with the acquisition of subsidiaries (Investing Cash Flow of -¥43.3B). Although the goodwill-to-net-assets ratio is limited at 6.7%, the realization of integration synergies will be an area of focus going forward.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

This is basic data indicating the company’s profitability level within the Food and Beverage industry; median data for comparable companies has not yet been prepared.

Growth and Capital Efficiency

The revenue growth rate reflects the expansion of the overseas business, and comparison with the industry median is pending further data preparation.

Source: Company research

Key Points in the Earnings Results

1. The Operating Income margin declined to 6.3% from 7.7% in the previous year, a 1.3pt decrease, confirming deterioration in operating leverage as the growth rate of SG&A expenses exceeded the revenue growth rate. The degree of SG&A expense restraint in the second half will determine whether the margin can recover.

2. OCF (¥218.0B) reached approximately 4.7 times Net Income attributable to owners of the parent (¥46.8B), confirming cash generation through inventory reduction and trade receivables collection. This level serves as a source of funds for dividends, share repurchases, and the reduction of interest-bearing debt.

3. Full-year progress was in the 46% range for both Revenue and Operating Income, while Net Income (on an attributable-to-owners-of-the-parent basis) was 44.6%. All were below the standard first-half progress benchmark of 50%, and the earnings forecast was revised during the current quarter. The continuation of overseas growth and cost control in the second half will be key points in achieving the full-year plan.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,880–¥1,988 at ±1% in the cost of equity capital, and ¥1,926–¥1,937 at ±0.1 in ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax expenses, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income: 54%). This value reflects that compression at face value; if the factors are temporary, normalized earning power may be higher.
• Since forecast ROE is below the cost of equity capital, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, resulting in a timing difference from the full-year forecast.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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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. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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