NittoBest Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥28.26B
• Operating Income: ¥61M
• Net Income: ¥88M
• EPS: ¥5.93

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

FY2026 Q2 was mixed: revenue grew modestly, ordinary profit improved YoY, but operating profit collapsed to a razor‑thin level and leverage/coverage metrics remain weak. Revenue rose 3.5% YoY to 282.6, with gross profit of 45.88 and a gross margin of 16.2%. Operating income fell to 0.61 (−97.8% YoY), placing operating margin at roughly 0.22%. Ordinary income increased 76.2% YoY to 0.90, aided by 1.05 in non‑operating income (notably 0.23 in dividend income and 0.04 in interest income) offset by 0.76 in non‑operating expenses. Net income was 0.71 (+56.0% YoY), supported by non‑operating items and a manageable tax charge of 0.32 (effective tax rate 26.8%). Based on the provided YoY figures, operating margin appears to have compressed by roughly 1,000 bps YoY, while ordinary margin expanded by about 13 bps, implying profit mix shifted away from core operations toward non‑operating support. EBITDA was 8.77 (margin 3.1%), insufficient relative to interest expense of 0.69, yielding weak interest coverage of ~0.89x. Cash generation was strong: operating cash flow of 20.87 was 29.4x net income, indicating substantial working capital tailwinds or timing benefits. Liquidity is adequate but not robust, with a current ratio of 1.21 and quick ratio of 1.01; leverage is elevated with D/E at 1.50x and Debt/EBITDA near 10x. ROE is low at 0.4% (DuPont: NPM 0.2%, asset turnover 0.685x, leverage 2.50x), highlighting thin profitability masked by balance‑sheet leverage. ROIC is just 0.2%, far below a cost‑of‑capital proxy and signaling inefficient capital use. The reported payout ratio of 204.6% looks unsustainably high against earnings, though OCF could temporarily support cash distributions. Forward‑looking, the key is restoring operating margin via price pass‑through, mix improvement, and cost control; otherwise, reliance on non‑operating gains and leverage will constrain earnings quality. Interest rate and refinancing risk rise if operating recovery lags. Monitoring working capital behavior is critical given the outsized OCF vs NI gap. Overall, the quarter shows top‑line resilience but significant core margin strain and fragile financial coverage, with strong short‑term cash flow buying time for operational fixes.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = 0.2% × 0.685 × 2.50 ≈ 0.4%. The most material drag is the net profit margin at 0.2%, which is extremely thin for a branded/processed food company; asset turnover is reasonable, and leverage is high but not accretive given the low margin. Operating income collapsed to 0.61 while gross margin stood at 16.2% and SG&A at 45.27, indicating limited ability to pass through input cost inflation and/or elevated fixed costs (personnel, logistics, utilities) absorbing gross profit. Non‑operating items (net +0.29) lifted ordinary profit, masking the weakness in core operations. Sustainability: the margin compression appears driven by operating cost pressures rather than one‑off factors; without structural cost reductions or pricing/mix improvements, recovery may be gradual. Asset turnover at 0.685x suggests moderate efficiency; further gains could come from tighter working capital (inventory and receivables) but may be limited by channel/service levels. Financial leverage at 2.50x equity magnifies returns when margins are healthy, but with NPM at 0.2% the leverage primarily raises risk. Concerning trends: implied SG&A intensity (~16.0% of sales) effectively consumed gross profit (16.2%), leaving negligible operating margin; this lack of operating leverage is a key red flag. Additionally, interest coverage below 1x indicates operating earnings do not cover financing costs, underscoring the urgency of margin restoration.

Growth Assessment

Revenue growth of +3.5% YoY to 282.6 indicates stable demand or improved pricing, but the translation to profit was poor as operating income fell 97.8% YoY to 0.61. Ordinary income rose 76.2% YoY to 0.90, driven by non‑operating contributions (dividends/interest and other items), not by operating expansion. Net income increased to 0.71 (+56.0% YoY), but the quality is mixed given the reliance on non‑operating gains and a minimal operating margin. EBITDA margin of 3.1% remains weak for absorbing fixed costs and interest burden. Near‑term outlook hinges on continued price pass‑through, cost normalization (raw materials, utilities, logistics), and improved product mix; absent these, earnings growth will likely trail revenue growth. Execution on SG&A discipline and procurement efficiencies is critical to re‑establish positive operating leverage.

Financial Health

Liquidity: current ratio 1.21 (above 1.0 but below the 1.5 comfort threshold) and quick ratio 1.01 indicate adequate short‑term coverage; no explicit warning for current ratio since it is not below 1.0. Working capital is 38.54, supported by cash of 48.93 and receivables of 99.74 against current liabilities of 185.26; short‑term loans are 47.64, which appear manageable given liquid assets. Solvency: D/E is 1.50x, right at the upper end of conservative benchmarks; total interest‑bearing debt approximates 87.34 (short‑term 47.64, long‑term 39.70). Interest coverage is weak at ~0.89x (operating basis), flagging debt service strain if operating recovery stalls. No off‑balance sheet obligations were disclosed in the provided data. Maturity mismatch risk is moderate: short‑term debt is significant but buffered by cash and receivables; refinancing risk will rise if lenders focus on sub‑1x coverage.

Cash Flow Quality

OCF/NI at 29.4x signals very strong cash conversion this period, likely driven by favorable working capital movements (e.g., receivables collection and/or inventory reductions) and non‑cash charges (D&A 8.16). Using OCF 20.87 and capex 4.49, proxy FCF is about 16.38, comfortably positive and capable of funding maintenance investment and potential dividends in the short run. However, the gap between OCF and NI suggests timing effects that may not repeat; sustainability depends on maintaining disciplined inventory and receivables while restoring margins. No clear signs of aggressive working capital manipulation are visible, but the magnitude of OCF vs NI warrants monitoring for reversals in subsequent quarters. Financing CF is −3.81, indicating some debt repayment or dividend outflow; details on dividend payments are unreported.

Dividend Sustainability

Dividend details are unreported, but the calculated payout ratio of 204.6% is well above the <60% benchmark and appears unsustainably high relative to current earnings power (NI 0.71). On a cash basis, proxy FCF of ~16.38 could cover cash dividends for now, but ongoing coverage would depend on maintaining strong OCF and improving operating profit. With interest coverage below 1x and ROIC at 0.2%, prudence would favor conserving cash until core margins recover; absent that, a high payout risks pressuring balance sheet flexibility. Policy outlook likely hinges on management’s medium‑term profitability restoration and debt service considerations.

Risk Assessment

Business Risks:

• Input cost inflation (raw materials, utilities, logistics) compressing gross and operating margins
• Limited price pass‑through and product mix constraints leading to negative operating leverage
• Customer/channel concentration risk in foodservice/retail if applicable (pricing power and volume volatility)
• Execution risk on SG&A efficiency and procurement initiatives

Financial Risks:

• Interest coverage below 1x indicating debt service strain
• Leverage elevated (D/E 1.50x; Debt/EBITDA ~10x) increasing refinancing and covenant risk
• Working capital reversal risk given OCF far exceeds NI this quarter
• Potential dividend cash outflow vs low earnings, tightening financial flexibility

Key Concerns:

• Operating margin near 0.2% despite positive gross margin, leaving little buffer for shocks
• Dependence on non‑operating income to support ordinary profit
• ROIC at 0.2% well below cost of capital, signaling poor capital efficiency
• Sensitivity to interest rate moves on sizeable short‑term borrowings

Investment Implications

Key Takeaways:

• Core profitability is under significant pressure: operating income 0.61 (margin ~0.22%) despite 3.5% revenue growth
• Ordinary and net profits improved YoY due to non‑operating support, not operating recovery
• Cash generation strong this quarter (OCF 20.87), but sustainability is uncertain given likely working capital timing
• Financial risk profile is tight: interest coverage ~0.89x and D/E 1.50x; deleveraging requires margin recovery
• ROE 0.4% and ROIC 0.2% highlight subpar returns and capital inefficiency

Metrics to Watch:

• Operating margin and gross-to-SG&A spread each quarter
• Price pass‑through progress and product mix improvements
• Working capital metrics (DSO, DIO, DPO) and OCF sustainability
• Interest coverage and Debt/EBITDA trajectory
• Capex discipline vs FCF and any dividend policy updates

Relative Positioning: Within Japan’s processed/packaged food peer set, revenue growth is in line to slightly below leaders, but profitability and coverage metrics are weaker, with heightened sensitivity to input costs and financing conditions; restoring operating margin is essential to narrow the gap.

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