KAGOME CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥216.31B
• Operating Income: ¥17.64B
• Net Income: ¥24.49B
• EPS: ¥116.15

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

Kagome (2811) reported FY2025 Q3 consolidated IFRS results showing a notable profit compression amid a modest revenue decline and elevated investment outflows. Revenue was 2,163.09, down 4.4% YoY, indicating softer demand and/or portfolio/pricing effects relative to the prior year. Gross profit was 754.23, yielding a gross margin of 34.9%, which is respectable for a branded foods company but suggests limited pricing power versus input cost dynamics compared to top-tier peers. SG&A was 518.96, leaving operating income at 176.42, down 46.0% YoY, implying material operating deleverage as sales contracted. Operating margin stood at approximately 8.2% (176.42 / 2,163.09), significantly lower than the prior year’s implied level, reinforcing pressure from weaker volumes and/or increased expenses. EBITDA was 265.99 (12.3% margin), cushioning operating pressure to a degree but still reflecting a downcycle in profitability. Profit before tax was 308.95, well above operating income, implying sizable non-operating gains or one-off items; however, the drivers are unreported, limiting attribution. With income tax of 64.06 (effective tax rate 20.7%), the implied post-tax profit before minority/discontinued items was considerably higher than net income of 106.81, indicating substantial below-the-line charges and/or non-controlling interest/discontinued operations impacts not detailed in the disclosure. Net income fell 52.6% YoY, and total comprehensive income was 84.22, underscoring additional OCI pressure. DuPont metrics show net profit margin of 4.9%, asset turnover of 0.581x, and financial leverage of 1.84x, producing an ROE of 5.3%, which is modest versus Japanese food peers. Cash flow from operations was robust at 161.58 and exceeded net income (OCF/NI 1.51x), but free cash flow was negative at -276.85 due to heavy investing cash outflows (-438.43). Financing inflows of 396.97, alongside short-term loans of 511.76 on the balance sheet, indicate debt-funded investment and working capital support. The equity ratio was 48.0% and debt-to-equity 0.75x, pointing to a still-sound capital structure, albeit with increased leverage. Inventories were elevated at 1,190.47, a key working capital swing factor to monitor for margin risk and cash conversion. The calculated payout ratio was 50.1%, while FCF coverage was -5.17x in the period, highlighting near-term tension between capex/investments and dividends. Data limitations exist for several non-operating, liquidity, and interest items; conclusions focus on disclosed, non-zero figures only.

Profitability Analysis

ROE decomposes to 5.3% via a 4.9% net margin, 0.581x asset turnover, and 1.84x financial leverage, indicating middling returns primarily constrained by thin profitability rather than excessive leverage. Operating margin was about 8.2%, down materially YoY given operating income declined 46.0% versus a 4.4% revenue drop, evidencing negative operating leverage. Gross margin at 34.9% suggests cost pass-through was only partially effective; combined with higher SG&A intensity, this compressed operating profits. EBITDA margin of 12.3% provides some cushion, but the gap between EBITDA and operating income (D&A of 89.57) implies capital intensity consistent with manufacturing and processing. The sharp divergence between operating income (176.42) and profit before tax (308.95) implies meaningful non-operating gains or one-offs; absent detail, we cannot infer recurring benefit. Net margin of 4.9% trails leading domestic peers in the sector, reflecting both cost pressures and operating deleverage. Overall, return profile is constrained by margin quality; asset turnover at 0.581x is moderate and not a significant offset, and leverage at 1.84x is not high enough to amplify returns materially.

Growth Assessment

Top-line contracted 4.4% YoY to 2,163.09, signaling softness in demand or adverse mix effects. The disproportionate fall in operating income (-46.0% YoY) versus revenue suggests unfavorable operating leverage, likely from volume declines, promotional activity, and/or cost inflation that outpaced pricing. Net income fell 52.6% YoY to 106.81, further pressured by below-the-line items (non-operating/discontinued/NCI effects) not disclosed in detail. Gross margin at 34.9% is adequate but indicates incomplete cost recovery, potentially reflecting input cost volatility (e.g., tomatoes, packaging, logistics) and competitive pricing constraints. The revenue base remains sizeable, and OCF at 161.58 demonstrates underlying cash generative capacity; however, inventory of 1,190.47 indicates working capital still ties up cash and could weigh on near-term growth efficiency. Investing CF of -438.43 points to an ongoing investment cycle, which may support medium-term growth in capacity, product innovation, or overseas expansion. With asset turnover at 0.581x, future growth quality will depend on better utilization of the asset base and normalization of margins. Outlook hinges on price-cost alignment, inventory normalization, and stabilization of demand; absent disclosure on non-operating drivers, sustainable earnings power should be assessed using operating income and cash conversion trends.

Financial Health

Total assets were 3,725.45 and total equity 2,023.07, resulting in an equity ratio of 48.0%, indicating a solid solvency buffer. Total liabilities stood at 1,507.74, with short-term loans of 511.76 and accounts payable of 444.12; current liabilities in total are unreported, limiting standard liquidity ratio analysis. Debt-to-equity was 0.75x, a moderate leverage profile for the sector. Cash and equivalents were 212.73, and financing CF was +396.97, suggesting incremental reliance on debt financing, likely to fund investment and working capital. Inventories (1,190.47) and accounts receivable (594.32) represent large current asset components; elevated inventories can pressure liquidity if demand softens. Working capital reported as 2,099.58 corresponds to current assets; actual net working capital cannot be calculated without current liabilities. While interest coverage cannot be computed due to unreported interest expense, EBITDA of 265.99 implies reasonable coverage under typical food sector borrowing costs. Overall solvency is adequate, but near-term liquidity depends on inventory management and continued access to short-term funding.

Cash Flow Quality

OCF of 161.58 exceeded net income of 106.81, yielding an OCF/NI of 1.51x, a positive indicator of earnings quality for the period. The gap between operating income (176.42) and OCF reflects working capital dynamics; with inventories at 1,190.47 and receivables at 594.32, inventory management remains the key swing factor for cash conversion. FCF was -276.85, driven by large investing outflows (-438.43), likely capex and strategic investments; capital expenditures are unreported, but the magnitude suggests a heavy investment phase. Financing CF was +396.97, consistent with the increase in short-term loans (511.76) and helping bridge negative FCF. EBITDA of 265.99 supports the view that cash generation from operations remains intact despite earnings pressure. The sizable difference between PBT (308.95) and net income (106.81) indicates non-operating and/or below-the-line items impacted accounting profit; OCF alignment with NI suggests core cash earnings are healthier than bottom-line volatility implies. Sustained improvements in inventory turnover and disciplined capex pacing will be critical to restoring positive FCF.

Dividend Sustainability

The calculated payout ratio is 50.1%, which appears elevated relative to depressed earnings but not extreme for a mature branded foods company. Dividends paid were -35.30 in cash terms during the period, implying a cash payout of roughly 33% versus year-to-date net income; however, DPS details are unreported. FCF coverage was -5.17x, indicating dividends were not covered by free cash flow due to heavy investment outflows this period. With an equity ratio of 48.0% and access to financing (financing CF +396.97), the company retains balance sheet flexibility to maintain dividends through an investment cycle, but sustained negative FCF would pressure coverage. Given the YoY earnings compression and ongoing capex, a stable-to-cautious dividend stance appears prudent until cash generation normalizes. Policy commentary is not disclosed; therefore, assessment relies on payout ratio, OCF support, and balance sheet capacity rather than explicit guidance.

Risk Assessment

Business Risks:

• Input cost volatility for agricultural raw materials (e.g., tomatoes) and packaging
• Weather and crop yield variability affecting procurement and quality
• Intensifying competition and private label pressure constraining pricing power
• Demand softness and mix shifts leading to operating deleverage
• Foreign exchange risk on imported ingredients and overseas operations
• Inventory obsolescence/markdown risk given elevated inventory levels
• Regulatory and food safety compliance requirements in multiple jurisdictions

Financial Risks:

• Negative free cash flow driven by heavy investment outflows
• Increased reliance on short-term borrowings (511.76) to fund capex and working capital
• Potential interest rate risk on floating-rate debt (interest expense not disclosed)
• Limited visibility on non-operating items leading to earnings volatility
• Liquidity sensitivity to inventory and receivable collection cycles

Key Concerns:

• Operating income down 46.0% YoY versus a 4.4% revenue decline, highlighting negative operating leverage
• Large gap between profit before tax (308.95) and net income (106.81), implying significant below-the-line impacts not disclosed
• Free cash flow of -276.85 with continued investment needs
• ROE at 5.3% below sector leaders, driven by margin compression

Investment Implications

Key Takeaways:

• Revenue contracted 4.4% YoY to 2,163.09 amid broad margin compression
• Operating margin of ~8.2% and EBITDA margin of 12.3% reflect reduced pricing power and deleverage
• Non-operating items boosted PBT to 308.95, but net income fell to 106.81 (-52.6% YoY)
• OCF/NI of 1.51x indicates decent cash earnings quality despite accounting volatility
• FCF was -276.85 due to heavy investing CF (-438.43), financed by increased short-term debt
• Equity ratio of 48.0% and D/E of 0.75x indicate moderate leverage with room for investment but rising reliance on debt
• Dividend payout ratio of 50.1% with negative FCF coverage underscores near-term funding tension

Metrics to Watch:

• Gross margin trajectory and price-cost spread
• Inventory levels and turnover (inventory 1,190.47) and resulting OCF conversion
• Capex intensity and investing CF normalization
• Operating margin recovery and SG&A efficiency
• Leverage and mix of short-term versus long-term funding (short-term loans 511.76)
• ROE progression from 5.3% via margin and asset turnover improvements
• Any disclosure on non-operating items driving the PBT/NI gap

Relative Positioning: Within Japanese branded food peers, Kagome’s current ROE (5.3%) and operating margin (~8.2%) are below leading names with double-digit ROE and higher, more stable margins. Capital structure is sound (equity ratio 48.0%, D/E 0.75x), but negative FCF and elevated inventories place it at a near-term disadvantage versus peers with stronger cash conversion.

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
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