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

Sato Shokuhin Kogyo Co., Ltd. (28140) delivered solid FY2026 Q2 results with clear operating leverage: revenue rose 10.0% YoY to ¥3,419m while operating income increased 45.1% YoY to ¥372m. Gross profit of ¥782.5m implies a gross margin of 22.9%, and operating margin improved to 10.9%, up materially from the prior-year period by our estimate. Ordinary income of ¥449m exceeded operating income, indicating positive non-operating contributions (e.g., interest/dividend income or other financial gains) that more than offset the minimal interest expense of ¥2.5m. Net income was ¥390m (+43.5% YoY), translating to a net margin of 11.41%, confirming broad-based margin expansion. The DuPont framework shows low financial leverage (assets/equity of 1.12) and modest asset turnover (0.157), resulting in a reported ROE of 2.01%, which appears low but is likely depressed by a large equity base and the interim period basis. Liquidity and solvency are very strong: current ratio stands at 821% and debt-to-equity is 0.10x, reflecting a conservative balance sheet. Operating cash flow was ¥306m, below net income (OCF/NI = 0.78), suggesting working capital build or timing effects despite healthy earnings and sizeable depreciation of ¥134.8m. Financing cash outflows of ¥327m occurred even though DPS and payout ratio are shown as zero, implying repayment of borrowings or other shareholder returns (data not fully disclosed). Cash and equivalents, inventories, and certain share data are reported as zero, which indicates non-disclosure rather than actual zeros; thus, liquidity ratios relying on these items should be interpreted cautiously. The effective tax rate shown as 0.0% is inconsistent with reported income tax of ¥118.1m; using NI + tax as a proxy for pretax income implies an effective rate around 23%. Interest coverage is exceptionally high at 148x, underscoring minimal financial risk. EBITDA of ¥506.8m (14.8% margin) confirms improved operating performance and better fixed-cost absorption. Overall, earnings quality is decent but not flawless given OCF trailing NI; nonetheless, the balance sheet strength and margin gains support a constructive fundamental trend. Data limitations (notably zero placeholders for several items) constrain precision in cash and working capital diagnostics, but the available non-zero data points are directionally positive.

Profitability Analysis

ROE decomposition indicates: Net margin 11.41% x Asset turnover 0.157 x Financial leverage 1.12 = ~2.01% ROE. Profitability improvement is driven primarily by margin expansion rather than leverage or efficiency. Operating margin at 10.9% rose sharply from an estimated ~8.3% in the prior-year period, given operating income growth of +45.1% on +10.0% revenue, implying operating leverage and better cost control. Gross margin of 22.9% suggests improved input cost dynamics and/or successful pricing; contribution from non-operating income boosted ordinary margin to 13.1% (449/3,419). EBITDA margin of 14.8% reflects healthy absorption of fixed overheads; depreciation of ¥134.8m indicates ongoing capital intensity, but not overly burdensome. Interest expense is negligible (¥2.5m), and interest coverage of 148x highlights minimal drag from financing costs. Overall margin quality appears sound, but sustainability depends on maintaining pricing power and managing raw material and energy/packaging costs.

Growth Assessment

Top-line growth of +10.0% YoY to ¥3,419m demonstrates healthy demand and/or effective pricing. Profit growth outpaced sales (OP +45.1%, NI +43.5%), evidencing operating leverage and mix/pricing benefits. Ordinary income outperformance vs operating income indicates incremental non-operating gains; these may not be recurring, so underlying operating growth is the better indicator. Revenue sustainability will hinge on consumer demand resilience, distribution breadth, and competitive pricing in the food/products category. The current period’s margin gains may normalize if input costs rebound; nonetheless, improved operating discipline should support better-than-prior-year profitability. With ROE at 2.01% on an interim basis, capital efficiency remains a medium-term improvement area; annualized profitability would likely be higher but still constrained by a large equity base. Outlook: steady growth with focus on price-cost balance, product mix upgrades, and efficiency, while non-operating tailwinds are not assumed to persist.

Financial Health

Balance sheet strength is high: total assets ¥21.743bn vs total equity ¥19.437bn yields low leverage (assets/equity 1.12; D/E ~0.10x). Current assets of ¥12.592bn vs current liabilities of ¥1.533bn produce a very robust current ratio of ~8.2x; the quick ratio equals the current ratio because inventories are not disclosed (reported as zero). Working capital is ample at ¥11.059bn, supporting operational flexibility. Interest burden is minimal (¥2.5m) with interest coverage of 148x, indicating very low solvency risk. Equity ratio is shown as 0.0%, but this is a non-disclosure anomaly; the implied equity ratio using available numbers is approximately 89% (19.437/21.743), underscoring a conservative capital structure. Overall, liquidity and solvency are strong, though the absence of disclosed cash and inventories requires caution in interpreting near-term liquidity buffers.

Cash Flow Quality

Operating cash flow of ¥306m is 78% of net income (¥390m), indicating a shortfall likely driven by working capital increases or timing (e.g., receivables build, inventory procurement, or payables reduction). Depreciation of ¥135m is substantial relative to operating income, supporting non-cash earnings quality; however, OCF underperformance vs NI tempers this. Investing cash flow is reported as zero (non-disclosure), preventing a reliable free cash flow calculation; the stated FCF of zero should be treated as not available rather than true zero. Financing cash flow of -¥327m suggests debt repayment and/or shareholder returns; with DPS reported at zero, the outflow is likely non-dividend (e.g., debt reduction), but details are not disclosed. Working capital dynamics cannot be fully assessed because inventories and cash are undisclosed; nonetheless, the OCF/NI ratio below 1.0 warrants monitoring to ensure earnings are translating into cash.

Dividend Sustainability

Annual DPS is reported at ¥0 and payout ratio at 0%, implying no dividend in the period. With net income of ¥390m and OCF of ¥306m, coverage for a modest dividend would be ample in principle given the strong balance sheet and low leverage; however, actual cash and capex are not disclosed. FCF coverage is shown as 0.00x due to missing investing cash flow data, so dividend capacity cannot be precisely quantified. The conservative capital structure (D/E ~0.10x) and strong liquidity suggest flexibility to initiate or maintain shareholder returns if policy permits. Near-term dividend outlook depends on management capital allocation priorities (growth investments vs returns) and visibility on capex; absent disclosure of investing outlays, we assume a cautious stance on sustainability assessments.

Risk Assessment

Business Risks:

• Raw material and energy/packaging cost volatility impacting gross margin
• Competitive pricing pressure in the food manufacturing sector
• Potential demand variability due to consumer spending trends and seasonality
• Dependence on product mix and pricing power to sustain recent margin gains
• Non-operating income contribution may be non-recurring

Financial Risks:

• Working capital build causing OCF to trail net income in the period
• Limited disclosure of cash, inventories, and investing cash flows complicates liquidity and FCF assessment
• Low asset turnover and large equity base constrain ROE despite profit growth
• Potential interest rate changes affecting financial income/non-operating items

Key Concerns:

• OCF/NI ratio of 0.78 indicates cash conversion risk if working capital pressures persist
• Key balance sheet items (cash, inventories) and capex are not disclosed, reducing transparency
• ROE at 2.01% is low relative to typical sector benchmarks

Investment Implications

Key Takeaways:

• Strong operating leverage: +10% sales drove +45% operating profit with operating margin rising to 10.9%
• Healthy profitability: net margin 11.41%, EBITDA margin 14.8%, and 148x interest coverage
• Very conservative balance sheet: D/E ~0.10x and implied equity ratio ~89%
• Cash conversion below earnings (OCF/NI 0.78), likely due to working capital
• Non-operating income supported ordinary profit; sustainability uncertain
• Data gaps (cash, inventories, investing CF) limit precision of FCF and liquidity analysis

Metrics to Watch:

• Gross and operating margin trajectory vs input cost trends
• OCF/Net income and working capital movements (receivables, payables, inventories when disclosed)
• Capex and investing cash flows to gauge sustainable FCF
• Asset turnover and ROE improvement from operational efficiency
• Ordinary income composition (recurring vs non-recurring items)

Relative Positioning: Versus domestic food manufacturers, the company shows improving margins and significantly lower leverage, but maintains lower ROE due to modest asset turnover and a large equity base; balance sheet strength is a clear positive while capital efficiency remains a relative weakness.

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