PIETRO Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.01B
• Operating Income: ¥67M
• Net Income: ¥-45M
• EPS: ¥-6.51

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q2 was mixed—solid top-line growth but sharp margin compression led to an ordinary loss and a net loss despite positive operating cash flow. Revenue rose 9.6% YoY to 60.10, indicating healthy demand recovery or successful pricing/mix. Gross profit reached 30.55 with a gross margin of 50.8%, but SG&A of 29.88 absorbed nearly all gross profit, leaving operating income at 0.67 (down 30.8% YoY). Operating margin declined to about 1.1% from roughly 1.8% a year ago, implying approximately 65 bps of margin compression. Non-operating expenses of 1.02 (including interest expense of 0.50) swung ordinary income to a loss of -0.30. Profit before tax was near breakeven at -0.03, and net income ended at -0.44, translating to basic EPS of -6.51 yen. EBITDA was 2.94, yielding an EBITDA margin of 4.9%, insufficient to comfortably cover interest expense (interest coverage 1.34x—weak). Positive operating cash flow of 2.89 contrasts with the accounting loss, helped by non-cash D&A (2.27) and likely working capital movements. However, capex was heavy at 23.76, implying materially negative FCF before financing; financing inflow of 34.69 likely funded the capex and cushioned liquidity. Balance sheet liquidity remains adequate with a current ratio of 135% and cash/deposits of 31.90 versus short-term loans of 20.77. Leverage is moderate on a balance sheet basis (D/E 1.25x; equity ratio ~44%), but high relative to earnings capacity (Debt/EBITDA ~17x) given depressed EBITDA. ROE was -0.7% on the DuPont view, driven primarily by negative net margin despite asset turnover of 0.432 and financial leverage of 2.25x. Reported ROIC of 0.8% is well below the 5% warning threshold, highlighting capital efficiency challenges amid sizeable investment. The effective tax rate appears distorted due to small losses and timing; it is not economically meaningful this quarter. Forward-looking, the priority is restoring operating margin via pricing, cost control, and realizing returns on recent capex; otherwise, interest burden and weak coverage ratios pose downside risk.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin (-0.7%) × Asset turnover (0.432) × Financial leverage (2.25x) = ROE of approximately -0.7%. The component that moved the needle most is net margin, which deteriorated as operating margin compressed to 1.1% and non-operating costs (notably interest) pushed ordinary income into the red. Business drivers include SG&A intensity remaining elevated (29.88) relative to gross profit (30.55), suggesting insufficient operating leverage in H1 and possible cost inflation (labor noted at 11.15) and marketing/logistics pressure. Non-operating expense burden (1.02) versus limited EBITDA (2.94) compounded the margin issue, reflecting a higher financing cost base. Sustainability assessment: the gross margin remains robust structurally at ~51%, so a portion of the net margin weakness appears cyclical/operational (cost inflation, timing of price pass-through), but interest burden will persist unless EBITDA improves. Operating leverage was unfavorable this quarter—revenue grew +9.6% but operating income fell -30.8%, indicating SG&A growth outpaced sales or fixed costs were not absorbed; this is a concern if continued. Watch for any SG&A growth exceeding revenue growth in upcoming quarters and whether price/mix gains can stabilize gross margin above 50% while SG&A ratio trends down.

Growth Assessment

Top line expanded 9.6% YoY to 60.10, a respectable pace for a packaged foods/business dining brand, pointing to demand resilience or price hikes. However, profit growth lagged materially: operating income fell 30.8% YoY to 0.67, and ordinary/net loss emerged due to financing and other non-operating costs. Margin dilution indicates cost pressures (labor 11.15 is sizeable) and possibly elevated logistics or promotional spending; price/mix likely supported gross margin but did not flow through to operating profit. The growth quality is therefore mixed—volume/price traction present, but weak operating leverage. Near-term outlook hinges on: 1) further price optimization and mix management to defend gross margin; 2) SG&A discipline (particularly personnel and selling expenses); 3) realization of returns from the large capex program (23.76) to improve efficiency and capacity. If capex is growth/efficiency-oriented, margin recovery could follow in FY2026 H2-FY2027; if maintenance-heavy, near-term lift may be limited. Non-operating drag via interest expense will cap earnings unless EBITDA expands. Overall, revenue momentum appears sustainable, but profit recovery requires execution on cost controls and capex payback.

Financial Health

Liquidity: Current ratio 135.4% (below the 150% comfort mark but >1.0), quick ratio 128.8%; no immediate liquidity alarm. Cash and deposits of 31.90 exceed short-term loans of 20.77, offering a cash cushion. Solvency: D/E 1.25x is moderate; equity ratio is approximately 44.4% (61.76/139.16), providing balance sheet resilience. Coverage: Interest coverage is weak at 1.34x, indicating limited buffer against earnings volatility; this is a red flag if operating conditions do not improve. Maturity profile: Current assets (53.64) exceed current liabilities (39.62) by 14.02 of working capital, mitigating short-term refinancing risk; nonetheless, a sizable portion of liabilities is interest-bearing (short-term 20.77, long-term 30.00). Maturity mismatch risk appears manageable currently given cash levels, but refinancing costs could rise if rates stay elevated. Off-balance sheet obligations: No disclosures available in the provided data.

Cash Flow Quality

OCF was positive at 2.89 despite a net loss of -0.44, implying supportive non-cash items (D&A 2.27) and potentially favorable working capital movements. The OCF/Net Income ratio is mechanically negative (-6.56x) due to the net loss; in context, this indicates cash earnings exceeded accounting earnings this quarter rather than poor quality. Capex was heavy at 23.76, implying materially negative free cash flow before financing (approximately -20.9 if using OCF - capex), though full investing CF disclosure is unavailable. Financing CF was a large inflow at 34.69, likely funded through increased borrowings, covering the capex and boosting liquidity. Sustainability: Ongoing negative FCF at this magnitude would be unsustainable without external funding; payback from the investment is critical to normalize FCF. Working capital: Accounts receivable of 15.28 vs inventory of 2.60 and payables of 6.57 suggest manageable inventory load, but turnover metrics cannot be assessed without prior-period balances; no overt signs of WC manipulation from the limited data.

Dividend Sustainability

Dividend data (DPS, total dividends paid) is not disclosed for the period, and the calculated payout ratio (-385.2%) is not economically meaningful given the net loss. With negative net income and heavy capex, dividend capacity depends on operating cash flow and available liquidity rather than earnings. OCF of 2.89 was positive, but implied FCF was negative after capex; any dividend would likely be funded by cash on hand or incremental debt, which would not be sustainable if repeated. Policy outlook cannot be inferred from the data provided; if the company targets stable dividends, near-term flexibility may be constrained until profitability and FCF improve.

Risk Assessment

Business Risks:

• Margin pressure from SG&A inflation (notably personnel costs at 11.15) outpacing revenue growth
• Cost inflation in raw materials and logistics potentially eroding gross-to-operating margin conversion
• Execution risk on large capex (23.76) delivering expected cost savings or growth
• Competitive intensity in dressings/pasta sauces and potential private label substitution

Financial Risks:

• Weak interest coverage at 1.34x heightens sensitivity to EBITDA shortfall
• High leverage relative to earnings capacity (Debt/EBITDA ~17x) given depressed EBITDA
• Reliance on financing inflows (34.69) to fund capex, raising refinancing and interest rate risk
• Ordinary loss driven by non-operating expenses indicates earnings vulnerability

Key Concerns:

• ROIC at 0.8% is well below the 5% warning threshold, signaling capital efficiency issues
• Operating margin compression (~65 bps YoY) despite 9.6% revenue growth
• Limited disclosure on investing CF, dividends, and detailed SG&A components reduces visibility
• Negative net income (-0.44) with an effective tax rate distorted by small losses

Investment Implications

Key Takeaways:

• Top-line growth strong (+9.6%), but profitability underwhelmed; operating income fell 30.8%
• Operating margin compressed to ~1.1% and ordinary income turned negative on higher non-operating costs
• OCF positive (2.89), but heavy capex (23.76) implies negative FCF before financing
• Interest coverage at 1.34x is a stress point; EBITDA recovery is essential
• Balance sheet liquidity adequate (current ratio ~135%, cash 31.90), equity ratio ~44%
• ROE -0.7% and ROIC 0.8% highlight weak returns pending margin recovery and capex payback

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trend
• Gross margin resilience versus input cost inflation
• EBITDA and interest coverage improvement toward >3x
• Free cash flow and capex payback trajectory
• Net debt/EBITDA and refinancing activity
• Receivables and inventory turns for working capital discipline

Relative Positioning: Within Japanese packaged foods and condiments peers, Pietro shows healthy revenue momentum and gross margin, but lags on operating leverage and capital efficiency this quarter; leverage is moderate on balance sheet metrics yet elevated versus earnings, placing it in a cautious middle-to-weak tier until profitability normalizes.

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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