NittoBest Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥28.26B
• Operating Income: ¥61M
• Net Income: ¥-14M
• 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

NittoBest (28770) reported FY2026 Q2 consolidated results under JGAAP showing resilient top-line growth but extremely compressed operating profitability. Revenue rose 3.5% YoY to ¥28.26bn, while gross profit reached ¥4.43bn, yielding a gross margin of 15.7%. Despite a stable gross margin, operating income collapsed to ¥61m (approximately 0.2% operating margin), a 97.8% YoY decline, indicating a sharp increase in operating expenses relative to sales. Ordinary income of ¥90m exceeded operating income, suggesting non-operating gains or financial items mitigated weak core operations. Net income improved 56.0% YoY to ¥71m, driven by non-operating items and a small tax credit (income tax of -¥3.6m), rather than operational strength. EBITDA was ¥959m (3.4% margin), implying sizable depreciation (¥898m) relative to a very thin operating margin and pointing to a capital-intensive cost base. DuPont decomposition yields a net margin of 0.25%, asset turnover of 0.685x, and financial leverage of 2.50x, resulting in a calculated ROE of 0.43%—low and constrained primarily by compressed net margins. Liquidity appears adequate with a current ratio of 124.1% and a quick ratio of 103.5%, supported by working capital of ¥4.09bn; inventories stood at ¥3.49bn. Based on the balance sheet totals, the equity-to-asset ratio is approximately 39.9% (computed from reported totals; the 0.0% equity ratio figure is an undisclosed placeholder), indicating a moderate capital structure. Interest coverage is tight at 1.1x on an operating income basis (¥61m / ¥55m), highlighting sensitivity to further earnings pressure or rate increases. Operating cash flow was ¥69m, broadly in line with net income (OCF/NI ≈ 0.98), suggesting earnings were mostly cash-based this period, though absolute cash generation is modest. Financing cash outflow of ¥1.02bn implies debt repayment and/or other financing uses; dividends were not paid (DPS 0). The absence of disclosed investing cash flows and cash balances limits visibility on free cash flow and liquidity buffers; values shown as zero likely reflect non-disclosure rather than actual zeros. Overall, the quarter shows stable sales but significant deterioration in operating leverage, with net income supported by non-operating factors. Near-term priority appears to be balance sheet prudence and cost control rather than shareholder distributions, consistent with DPS at zero.

Profitability Analysis

ROE of 0.43% is driven by a low net margin (0.25%), moderate asset turnover (0.685x), and financial leverage of 2.50x. Gross margin is 15.7%, but the operating margin is only 0.22%, indicating elevated SG&A and other operating costs consuming the majority of gross profit. EBITDA margin at 3.4% underscores that depreciation is meaningful, reflecting a capital-intensive footprint; however, underlying operating profitability remains very thin. The large negative swing in operating income versus revenue growth suggests adverse operating leverage—cost inflation, wage pressures, logistics, or product mix likely offset price increases. Ordinary income (¥90m) above operating income points to helpful non-operating items (e.g., subsidies, FX, or investment income), partially masking core weakness. Interest expense of ¥55m against operating income of ¥61m yields 1.1x interest coverage, leaving little buffer. Effective tax rate is near zero due to a small tax credit, which helped net income despite weak operations.

Growth Assessment

Revenue growth of 3.5% YoY indicates steady demand, likely supported by pricing or modest volume gains. However, the near-wipeout of operating profit suggests that current growth is not translating into sustainable earnings due to cost pass-through lag or adverse mix. Profit quality is mixed: net income rose 56% YoY, but this is not reflective of operational improvement; it hinges on non-operating factors and tax credits. With EBITDA at ¥959m but operating income at ¥61m, incremental costs—possibly labor, energy, raw materials, or distribution—are pressuring margins. Outlook hinges on the company’s ability to execute price adjustments, reformulate products, optimize procurement, and control SG&A to restore operating leverage. Revenue sustainability appears reasonable given the stable top line, but profit sustainability is uncertain until gross-to-operating margin conversion improves. Management’s near-term focus should likely be on margin restoration rather than sheer top-line expansion.

Financial Health

Liquidity is adequate: current ratio 124.1%, quick ratio 103.5%, and working capital of ¥4.09bn provide short-term coverage. Inventories of ¥3.49bn are material; inventory discipline will be important to avoid working capital drag. Using reported totals, equity is ¥16.47bn versus assets of ¥41.24bn, implying an equity ratio around 39.9% (the disclosed 0.0% equity ratio is an undisclosed placeholder). Debt-to-equity is 1.41x, indicating moderate leverage but manageable given the equity base. Solvency risk is heightened by thin operating earnings relative to interest (1.1x coverage), leaving limited cushion if operating conditions deteriorate. Financing cash outflow of ¥1.02bn suggests deleveraging or other financing uses; absent detailed cash balances (undisclosed), inference on liquidity buffers is limited. Overall, the balance sheet is moderate in leverage but the income statement’s weak coverage is the principal constraint.

Cash Flow Quality

OCF of ¥69m versus net income of ¥71m yields an OCF/NI ratio of 0.98, indicating earnings were largely cash-realized in the period. However, absolute OCF is low versus depreciation (¥898m), implying cash generation is not covering maintenance-level non-cash charges. Free cash flow cannot be reliably assessed because investing cash flows are undisclosed (reported as zero per data note); thus, FCF reported as zero should be treated as unavailable rather than truly zero. Working capital appears stable overall, but inventories are significant at ¥3.49bn; any build would pressure OCF given the small cash earnings base. Financing outflows (¥1.02bn) suggest debt repayment or other uses of cash; without disclosed cash and equivalents, the impact on liquidity headroom cannot be quantified. Earnings quality is acceptable in accrual terms for this quarter, but sustainability is questionable given minimal operating margin.

Dividend Sustainability

DPS is zero and payout ratio is 0%, indicating no dividends. With OCF roughly equal to net income but very small in absolute terms, internal cash generation is insufficient to support meaningful distributions without margin recovery. FCF coverage cannot be assessed due to undisclosed investing cash flows; reported FCF of zero reflects non-disclosure. The financing cash outflow and focus on balance sheet management are consistent with a conservative stance on dividends. Future dividend capacity will depend on restoring operating margins and generating positive, recurring FCF after maintenance capex.

Risk Assessment

Business Risks:

• Raw material cost inflation and procurement volatility affecting gross margins
• Energy and logistics cost pressures compressing operating margins
• Pricing power and pass-through lag risks in foodservice/retail channels
• Product mix shifts toward lower-margin SKUs
• Labor shortages and wage inflation impacting SG&A
• Operational execution risk in cost control and productivity improvements
• Customer concentration or contract pricing terms limiting flexibility
• Regulatory and food safety compliance requirements

Financial Risks:

• Very thin interest coverage (1.1x) increasing sensitivity to earnings volatility
• Potential refinancing and interest rate risk given moderate leverage
• Working capital swings (especially inventories) can strain OCF
• Limited visibility on cash and investing outflows impairs liquidity assessment
• High depreciation relative to OCF suggests capex and asset intensity may pressure FCF

Key Concerns:

• Operating income collapse despite revenue growth indicates adverse operating leverage
• Dependence on non-operating items and tax credits to support net income
• Inadequate cushion versus interest costs if operating conditions worsen

Investment Implications

Key Takeaways:

• Top-line grew 3.5% YoY, but operating profit fell 97.8% YoY to ¥61m (0.22% margin)
• Net income rose 56% YoY to ¥71m, aided by non-operating items and a small tax credit
• Interest coverage is tight at 1.1x, highlighting vulnerability to further margin pressure
• Liquidity is adequate (current ratio 124%, quick ratio 104%), and equity ratio ~40% by calculation
• OCF ≈ net income, but absolute cash generation is modest versus depreciation (¥898m)
• Dividend suspended (DPS 0), likely prioritizing balance sheet strength and margin recovery

Metrics to Watch:

• Gross and operating margin trajectories and SG&A-to-sales ratio
• Interest coverage (target >3x) and ordinary income vs. operating income gap
• OCF/Net income (>1.0 sustainably) and working capital efficiency (inventory days)
• Price pass-through efficacy and input cost trends
• Capex and investing cash flows to assess true FCF
• Leverage (debt-to-equity) and computed equity ratio for solvency buffer

Relative Positioning: Within Japanese mid/small-cap food manufacturers, NittoBest’s revenue growth is in line to modest, but margins and ROE are currently below peer medians, with moderate balance sheet strength offset by weak operating coverage.

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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