KENKO Mayonnaise Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥45.94B
• Operating Income: ¥1.94B
• Net Income: ¥1.25B
• EPS: ¥83.45

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: Soft quarter with significant margin compression and profit decline despite only a slight revenue dip. Revenue was 459.41 (−1.1% YoY), but operating income fell to 19.44 (−39.1% YoY) and net income declined to 12.45 (−44.6% YoY), indicating pronounced deleveraging. Gross profit was 101.81, yielding a gross margin of 22.2%, while operating margin came in at 4.2%. Ordinary income was 20.04 (−38.7% YoY), aided slightly by 1.08 in non-operating income, and net margin was 2.7%. Based on prior-period estimates, operating margin contracted by roughly 265 bps YoY (from ~6.9% to 4.2%), ordinary margin by ~269 bps (from ~7.1% to 4.4%), and net margin by ~213 bps (from ~4.8% to 2.7%). Depreciation and amortization was 13.56, bringing EBITDA to 33.00 and an EBITDA margin of 7.2%, also indicating compression relative to revenue. Operating cash flow of 14.37 exceeded net income (OCF/NI = 1.15x), suggesting acceptable earnings quality despite profit pressure. Liquidity remains strong with a current ratio of 193% and quick ratio of 178%, and solvency appears conservative with D/E of 0.58x and interest coverage of 97.2x. Total assets were 645.59 with equity of 408.71, implying financial leverage of 1.58x and a DuPont-calculated ROE of 3.0%. ROIC is 4.6%, below the 5% warning threshold and well under typical 7–8% targets, highlighting subdued capital efficiency. The sharp decline in operating profit versus a modest revenue drop points to fixed-cost deleveraging and/or insufficient price pass-through against input inflation. Non-operating items were modest and did not offset operating weakness. Estimated FCF (OCF minus capex) was about 8.63, likely adequate to support dividends if the reported payout ratio of 56.9% reflects current practice. Forward-looking, stabilization hinges on raw material cost trends (edible oils, eggs), successful price/mix improvements, and SG&A discipline. Near-term guidance sensitivity remains high given the low operating margin base and sub-5% ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.0% = Net Profit Margin (2.7%) × Asset Turnover (0.712) × Financial Leverage (1.58x). The largest adverse change appears in net profit margin, inferred from a ~265 bps operating margin contraction despite only a 1.1% revenue decline. Business drivers likely include cost inflation in key inputs (edible oils, eggs, packaging), lagged price pass-through to retail/foodservice customers, and fixed-cost deleveraging in SG&A. Asset turnover at 0.712 is modest and likely stable; the balance sheet shows ample cash and receivables, which dampens turnover. Financial leverage at 1.58x is conservative and unchanged as a driver, so it did not help offset margin pressure. The margin compression seems partly cyclical (input costs, pricing lag) and partly structural (product mix, operating efficiency), with sustainability dependent on further price revisions and procurement gains; we view some normalization as possible but not assured. A concern is operating expenses staying sticky while revenue fell, pointing to negative operating leverage; while SG&A detail is unreported, the 39% OP decline versus a 1% revenue decline is consistent with fixed costs weighing on margins.

Growth Assessment

Top-line contracted slightly (−1.1% YoY to 459.41), indicating volume/mix softness or partial giveback after prior price hikes. Profit growth deteriorated sharply: operating income −39.1% and net income −44.6%, highlighting weak operating leverage. Current operating margin is 4.2% vs an implied ~6.9% a year ago, indicating material compression. Profit quality remains acceptable as OCF surpassed NI (1.15x), suggesting earnings are backed by cash conversion. Revenue sustainability hinges on price/mix management in mayonnaise, dressings, and deli products, as well as recovery in foodservice channels; the quarter does not yet show clear acceleration. Non-operating contributions (1.08) were small and not a growth driver. Outlook: stabilization requires a combination of input cost normalization, procurement efficiency, and incremental price/mix actions; without this, earnings recovery could be slow given the low ROIC (4.6%).

Financial Health

Liquidity is strong: current ratio 193.2% and quick ratio 177.6% exceed healthy thresholds. No warning on Current Ratio (<1.0) or D/E (>2.0) as D/E is 0.58x, indicating conservative solvency. Interest coverage is very strong at 97.2x, suggesting ample buffer for financing costs. Maturity mismatch risk appears low: current assets 353.79 vs current liabilities 183.16 provide comfortable coverage; accounts receivable (148.84) and cash (155.70) together exceed current liabilities net of payables. Long-term loans are modest at 30.32, and total liabilities are 236.88 against equity of 408.71. No off-balance sheet obligations are reported in the provided data. Overall capital structure is solid, providing flexibility to navigate margin volatility.

Cash Flow Quality

OCF/NI is 1.15x (>1.0), indicating acceptable earnings quality this quarter. Operating CF of 14.37 covers depreciation (13.56) and supports maintenance/incremental capex. Using reported capex (5.74), estimated FCF is approximately 8.63 (OCF − CapEx), suggesting positive discretionary cash generation. With profits under pressure, sustaining FCF depends on working capital discipline; receivables are sizable (148.84) relative to inventories (28.53), typical for the business model, but increases in DSO could weigh on OCF. No overt signs of working capital manipulation are visible from the limited snapshot, but we note sensitivity to payables timing given accounts payable of 111.31. Financing CF was −7.28, consistent with dividends/debt service, but detailed uses are unreported.

Dividend Sustainability

Reported payout ratio is 56.9%, within the <60% benchmark for sustainability. DPS is unreported; however, applying the payout ratio to NI of 12.45 implies dividends around 7.09, which would be covered by estimated FCF of ~8.63 (FCF/Dividends ~1.22x). Balance sheet strength (net cash position implied by large cash vs modest loans) provides additional cushion. Key caveat: if earnings remain at a 4% operating margin run-rate, dividend headroom narrows; any further margin compression could push payout above comfort levels. Policy outlook likely emphasizes stable dividends with gradual increases aligned to profit normalization; absent visibility on guidance and DPS, we treat current coverage as adequate but sensitive to profitability.

Risk Assessment

Business Risks:

• Input cost volatility (edible oils, eggs, packaging) pressuring gross margins
• Price pass-through timing lag to retail and foodservice customers
• Product mix shifts toward lower-margin SKUs
• Operational fixed-cost deleveraging in low-volume environments
• Competition in condiments and deli categories affecting pricing power

Financial Risks:

• Sub-5% ROIC (4.6%) indicating low capital efficiency
• Working capital sensitivity to receivable collection (large A/R base)
• Potential earnings volatility from tax rate normalization (32.3% effective rate)
• Dividend coverage dependence on maintaining positive OCF amid margin pressure

Key Concerns:

• Material margin compression (~265 bps in operating margin YoY) with only −1.1% revenue change
• Operating income decline (−39.1% YoY) outpacing revenue, indicating negative operating leverage
• Sustained low ROE (3.0%) relative to cost of equity proxies

Investment Implications

Key Takeaways:

• Earnings underperformed: sizable OP and NI declines on slight revenue contraction
• Operating margin compressed to 4.2% (~−265 bps YoY), primary driver of ROE down to 3.0%
• Earnings quality acceptable (OCF/NI 1.15x) with positive estimated FCF (~8.63)
• Balance sheet is strong (current ratio 193%, D/E 0.58x), mitigating downside risk
• ROIC at 4.6% flags capital efficiency concerns and limits rerating without margin recovery

Metrics to Watch:

• Gross and operating margin trajectory and bps change QoQ/YoY
• Raw material indices (soybean oil, eggs) and FX JPY/USD pass-through
• Price/mix realization in core mayonnaise, dressings, and deli segments
• OCF/NI ratio and working capital turns (DSO/DIO/DPO)
• Capex vs depreciation and ROIC improvement toward 7–8% range

Relative Positioning: Within domestic packaged foods and refrigerated deli peers, the company exhibits solid liquidity and low leverage but lower-than-desired profitability (ROIC 4.6%, ROE 3.0%) and heightened sensitivity to input costs. Execution on pricing and cost control will determine convergence toward peer-level margins.

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