SATO FOODS INDUSTRIES CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.42B
• Operating Income: ¥372M
• Net Income: ¥390M
• EPS: ¥109.62

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: A strong FY2026 Q2 with double-digit top-line growth and outsized profit expansion, though cash conversion and capital efficiency warrant attention. Revenue rose 10.0% YoY to 34.19, while operating income jumped 45.1% YoY to 3.72, signaling successful operating leverage and/or cost pass-through. Gross profit was 7.83, yielding a gross margin of 22.9%. Operating margin reached 10.9% this quarter, up an estimated 266 bps YoY based on back-calculated prior-year figures. Ordinary income of 4.49 benefited from 0.76 in non-operating income, including 0.70 of dividend income, making non-operating contributions material at a 19.4% ratio. Net income increased 43.5% YoY to 3.90, translating to a net margin of 11.4%, up an estimated 265 bps YoY. EPS (basic) printed 109.62 JPY on a low average share count (3.56 million) due to significant treasury shares. Balance sheet strength is exceptional: cash and deposits of 97.23, low total liabilities of 18.69, and D/E of 0.10x. Liquidity is ample with a current ratio of 821% and working capital of 110.59. Interest coverage is very strong at 148x, reflecting minimal interest burden versus EBITDA of 5.07. However, cash flow quality is a watch point: OCF of 3.06 vs NI of 3.90 yields an OCF/NI ratio of 0.78 (<0.8 flag), indicating weaker cash conversion this period. Capital intensity remains low with modest capex of 0.36, and financing outflows were -3.27, largely due to share repurchases of -2.38. ROE calculates to 2.0% and ROIC to 2.5%, both subdued, driven by low leverage (1.12x) and slow asset turnover (0.157) despite high net margin. Profit composition shows reliance on dividend income, which may be less stable than operating earnings. Forward-looking, sustaining double-digit margins will hinge on cost control and pricing, while improving ROIC/asset turnover and stabilizing cash conversion will be key to enhance long-term value.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 11.4% × 0.157 × 1.12 ≈ 2.0%. Component changes: based on YoY, net margin improved materially (from ~8.75% to 11.4%, +265 bps), while asset turnover remains low (0.157) and leverage is modest (1.12x). The largest positive change is the net profit margin, inferred from operating income growth (+45.1%) outpacing revenue growth (+10.0%) and ordinary income uplift from non-operating gains. Business drivers: stronger operating margin (10.9%) suggests improved mix, pricing, and/or cost relief, while 0.70 of dividend income boosted ordinary income beyond core operations. Sustainability: operating leverage benefits may persist if pricing and efficiency hold, but the dividend income component is inherently volatile and not fully controllable—thus a portion of the YoY margin lift may be one-time or periodic. Quality flags: SG&A breakdown is unreported, but operating income growth far exceeded revenue growth, implying fixed-cost leverage; monitor for SG&A growth re-accelerating ahead of sales in subsequent quarters. Overall, ROE remains low due to structurally low asset turnover and conservative leverage, despite healthy margins.

Growth Assessment

Revenue growth of 10.0% YoY to 34.19 indicates healthy demand and/or effective pricing. Operating income growth of 45.1% YoY to 3.72 shows strong operating leverage, driving operating margin expansion to 10.9% (+~266 bps YoY by estimate). Ordinary income of 4.49 benefited from non-operating income (0.76), chiefly dividend income (0.70), highlighting a non-core contribution to growth. Net income increased 43.5% YoY to 3.90, with net margin rising to 11.4% (+~265 bps YoY by estimate). EBITDA of 5.07 (margin 14.8%) underscores improved operating efficiency. Growth quality is mixed: core profitability improved, but reliance on dividend income (non-operating income ratio 19.4%) adds variability. Outlook: sustaining double-digit margins will depend on cost pass-through, raw material trends, and maintaining mix/pricing; growth visibility would improve with evidence of recurring operating drivers rather than market-dependent dividend gains.

Financial Health

Liquidity is exceptionally strong: current ratio 821.2% and quick ratio 821.2% (no inventories reported), with cash and deposits of 97.23 versus current liabilities of 15.33. No warning on current ratio (<1.0) or leverage (>2.0): D/E is 0.10x, indicating a conservative capital structure. Interest coverage is robust at 148.27x, reflecting minimal interest burden (interest expense 0.03). Short-term debt (short-term loans 6.70) is fully covered by cash on hand, minimizing maturity mismatch risk. Total liabilities of 18.69 against total assets of 217.43 support solvency strength. No off-balance sheet obligations were disclosed in the provided data. Overall financial health is strong with ample liquidity and low leverage.

Cash Flow Quality

OCF was 3.06 versus net income of 3.90, yielding OCF/NI of 0.78—below the 0.8 threshold and flagged as a potential quality issue. The gap suggests weaker cash conversion this quarter, potentially from working capital build (specific drivers not disclosed; AR stands at 11.82, inventories unreported). Capex was modest at 0.36, implying limited capital intensity. Implied FCF (OCF − capex) is approximately 2.70, but full investing CF items were not disclosed, so comprehensive FCF is uncertain. Financing CF of -3.27 includes share repurchases of -2.38; dividends paid were unreported, limiting full cash return analysis. No overt signs of working capital manipulation are evident from available data, but the OCF shortfall vs NI merits monitoring in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 87.0%, which is elevated versus a <60% benchmark for comfort. DPS and total dividends paid were not disclosed, limiting precision. With implied FCF of ~2.70 (subject to undisclosed investing cash flows), coverage of dividends plus buybacks cannot be conclusively assessed; however, cash on hand (97.23) and low leverage provide a buffer. Sustainability hinges on: maintaining improved operating margins, stabilizing OCF/NI above 1.0, and limiting shareholder returns to within FCF. Policy outlook is unclear from the data; substantial treasury shares and recent buybacks (-2.38) suggest active capital returns, but a high payout ratio alongside low ROIC (2.5%) argues for cautious calibration of future distributions.

Risk Assessment

Business Risks:

• Raw material and energy cost volatility potentially pressuring gross margin (current 22.9%).
• Dependence on non-operating dividend income (0.70) to support ordinary income (non-operating income ratio 19.4%).
• Potential customer concentration and pricing pressure in food retail/foodservice channels (industry norm).
• Execution risk in maintaining operating leverage after a strong margin expansion quarter.

Financial Risks:

• OCF/NI at 0.78 indicates weaker cash conversion this period.
• Low asset turnover (0.157) and low ROIC (2.5%) limit capital efficiency and may constrain value creation.
• Market risk to investment securities (34.67) that underpin dividend income.

Key Concerns:

• Sustainability of margin expansion given non-operating income contribution.
• Elevated payout ratio (87.0%) relative to cash conversion profile.
• Potential volatility in dividend inflows from investments affecting ordinary income.

Investment Implications

Key Takeaways:

• Strong Q2 with revenue +10% and operating income +45.1%, driving operating margin to 10.9%.
• Net margin expanded to 11.4% (+~265 bps YoY by estimate), aided by non-operating dividend income.
• Balance sheet is exceptionally liquid (current ratio 821%) with low leverage (D/E 0.10x).
• Cash conversion lag (OCF/NI 0.78) and low ROIC (2.5%) are the main quality headwinds.
• Active capital returns via buybacks (-2.38) alongside a high payout ratio (87.0%) merit scrutiny.

Metrics to Watch:

• OCF/Net income ratio (target >1.0) and working capital movements.
• Operating margin sustainability and SG&A trajectory vs revenue.
• Contribution and stability of non-operating/dividend income.
• ROIC improvement toward ≥5% near term and ≥7–8% longer term.
• Capex cadence and capacity utilization (to support asset turnover).

Relative Positioning: Compared with typical small-cap Japanese food manufacturers, the company exhibits superior balance sheet strength and currently stronger margins, but trails on capital efficiency (ROIC, asset turnover). Profit composition has a higher non-operating component than peers relying predominantly on operating profit, introducing added volatility.

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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