KENKO Mayonnaise Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

While the core Seasonings and Processed Foods Business remained solid, achieving increases in both revenue and profit, deteriorating profitability in the Prepared Foods-Related Business weighed on company-wide profit, resulting in a quarter of higher revenue but lower profit. Revenue increased to ¥233.2B (+2.9% YoY), while Operating Income declined to ¥7.3B (-4.7% YoY) and Ordinary Income to ¥7.8B (-2.0% YoY). Net Income secured a modest increase to ¥5.7B (+0.9% YoY). Although the gross margin improved by +22bp to 21.8%, the SG&A expense ratio rose by +46bp to 18.7%, absorbing the gross-margin improvement and serving as the primary cause of higher revenue but lower profit.

Factors Driving Performance Changes

【Revenue】Revenue increased to ¥233.2B, up +2.9% YoY. The core Seasonings and Processed Foods Business grew to ¥191.5B (82.1% of total, +4.6%), driving the company overall; however, the Prepared Foods-Related Business declined to ¥58.0B (24.9% of total, -8.0%), weighing on the company-wide growth rate.

【Profitability】The gross margin improved to 21.8% (21.6% in the previous year, +22bp), but the SG&A expense ratio increased to 18.7% (18.2% in the previous year, +46bp), offsetting the benefit of the gross-margin improvement. As a result, Operating Income declined to ¥7.3B (-4.7%), and the Operating Income margin fell to 3.1% (-25bp). Including ¥0.4B in equity-method income and other items, Ordinary Income was ¥7.8B (-2.0%). Extraordinary income and losses were immaterial (extraordinary loss of ¥0.01B), and the impact of one-time factors was limited. Net Income was ¥5.7B (+0.9%) after a ¥2.1B income tax expense, with the difference from Ordinary Income primarily attributable to the tax burden. In summary, the company recorded higher revenue but lower profit, with deterioration in the Prepared Foods-Related Business’s profitability and front-loaded increases in SG&A expenses constituting structural factors.

Segment Analysis

By segment, the Seasonings and Processed Foods Business generated revenue of ¥191.5B (+4.6%) and Operating Income of ¥5.5B (+6.7%), with its margin improving to 2.8%, making it the core business responsible for most of company-wide Operating Income. In contrast, the Prepared Foods-Related Business recorded revenue of ¥58.0B (-8.0%) and Operating Income of ¥1.6B (-37.1%), with its margin deteriorating significantly to 2.7%, hindering company-wide operating leverage. Other Businesses generated revenue of ¥1.5B (-20.9%) and an Operating Loss of ¥0.0B, with a limited impact on the company overall. As reliance on the core business for revenue increases, restoring the profitability of the Prepared Foods-Related Business will be key to improving company-wide performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.1%, down from 3.4% in the previous year, while the Net Income margin was 2.4%, broadly in line with the previous year despite a slight change. The improvement in the gross margin to 21.8% was offset by the increase in the SG&A expense ratio to 18.7%, meaning operating leverage was not achieved.【Cash Flow Quality】The difference between Ordinary Income and Net Income was primarily attributable to the ¥2.1B income tax expense. The tax burden ratio was approximately 27.5%, within a standard range, and there were no factors that significantly distorted earnings quality.【Investment Efficiency】ROE remained low at 1.4%, while the low total asset turnover ratio—revenue of ¥233.2B against total assets of ¥640.9B—constrained capital efficiency.【Financial Soundness】The Equity Ratio remained high at 64.7%. With cash and deposits of ¥124.9B against long-term borrowings of ¥26.4B, the overall financial foundation remains stable.

Cash Flow Analysis

Although the statement of cash flows was not disclosed, fund movements can be assessed from changes in the balance sheet. Cash and deposits were ¥124.9B, down from ¥137.5B in the previous year, while accounts receivable and notes receivable increased to ¥147.5B (¥146.3B in the previous year) and inventories increased to ¥36.4B (¥31.0B in the previous year), indicating an accumulation of working capital. Construction in progress increased significantly to ¥16.2B (¥5.9B in the previous year), suggesting that investment in production facilities has been front-loaded and is one factor behind the use of funds. Retained earnings were ¥321.0B, slightly down from ¥321.7B in the previous year; overall financial capacity has been maintained amid the balance between dividend payments and the accumulation of Net Income. The upward trend in working capital suggests a time lag in cash conversion relative to revenue growth.

Earnings Quality

Current-period earnings were primarily generated by recurring business activities. Extraordinary income and losses remained immaterial (extraordinary loss of ¥0.01B), limiting the impact of one-time factors on profit. Non-operating income was ¥0.9B, approximately 0.4% of Revenue, and included ¥0.4B in equity-method income, but was not large enough to materially distort earnings quality. Although Ordinary Income was ¥7.8B compared with Net Income of ¥5.7B, this difference was attributable to the ¥2.1B income tax expense, with the tax burden ratio at approximately 27.3% and no particular abnormalities. Meanwhile, accounts receivable and inventories continue to increase, indicating that the pace of cash collection and inventory digestion is somewhat lagging revenue growth; this requires monitoring from the perspective of future accruals.

Earnings Forecast and Guidance

Progress against the Full-Year plan was 24.1% for Revenue (¥970.0B plan), 18.2% for Operating Income (¥40.0B plan), and 18.8% for Ordinary Income (¥41.5B plan), all below the standard quarterly progress rate of 25%. The delays in progress for Operating Income and Ordinary Income are particularly notable, with the decline in profit at the Prepared Foods-Related Business and front-loaded SG&A expenses considered to be the background factors. The Full-Year plan calls for year-on-year declines in both Operating Income and Ordinary Income (-3.7% and -4.1%, respectively), making earnings improvement in the second half a prerequisite for achieving the plan. There were no revisions to the earnings forecast or dividend forecast, and the company is maintaining its plan at this point.

Shareholder Returns

The company’s annual dividend plan is ¥70 per share (the ¥23 for the previous period represents the actual interim dividend), implying a Payout Ratio of approximately 36.3% based on the company’s planned EPS of ¥193.09. With a high Equity Ratio of 64.7%, cash and deposits of ¥124.9B, ample liquidity on hand, and limited interest-bearing debt consisting of ¥26.4B in long-term borrowings, the company has substantial financial capacity to maintain dividends. There has been no disclosure regarding share repurchases, and shareholder returns currently center on dividends.

Risk Factors

1. Deterioration in the profitability of the Prepared Foods-Related Business: Against revenue of ¥58.0B (-8.0%), Operating Income declined to ¥1.6B (-37.1%) and the profit margin fell to 2.7%, making this a factor diluting the company-wide margin.

2. Working capital tied up: Accounts receivable and notes receivable of ¥147.5B and inventories of ¥36.4B both increased from the previous year, and delays in cash conversion relative to revenue growth could put pressure on capital efficiency.

3. Execution risk associated with front-loaded investment: Construction in progress surged to ¥16.2B (¥5.9B in the previous year, +175%), and if delays in commencement of operations or shifts in the investment recovery timing occur, the realization of cost improvement benefits could be postponed.

Industry Benchmark (For Reference; Based on Company Research)

Profitability and Returns

The company’s profitability indicators are below the industry median, placing it in the lower tier of the Food and Beverage sector.

Growth and Capital Efficiency

The Revenue growth rate is also below the industry median, indicating relative underperformance within the industry in terms of growth.

※Source: Based on company research

Key Takeaways from the Earnings Results

1. The core Seasonings and Processed Foods Business continued to achieve higher revenue and profit (revenue +4.6%, profit +6.7%), alongside an improvement in the gross margin, confirming to a certain extent the effectiveness of its pricing and product-mix strategy. Meanwhile, the structure in which the decline in the Prepared Foods-Related Business is hindering company-wide operating leverage is clear.

2. The SG&A expense ratio rose to 18.7%, offsetting the gross-margin improvement (+22bp), and the Operating Income margin consequently declined to 3.1% (-25bp). SG&A expense growth exceeded the +2.9% Revenue growth rate, placing the company in a situation where changes in the cost structure are influencing the trend in profitability.

3. Progress toward the Full-Year plan for both Operating Income and Ordinary Income was below standard, with performance weighted toward the second half. The company has not revised its earnings forecast, and the extent to which the Prepared Foods Business can be rebuilt and SG&A expenses controlled in the second half will be key points to monitor in assessing achievement of the Full-Year plan.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson type, with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,591–¥2,741 at ±1% for the cost of equity, and ¥2,657–¥2,669 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest-rate reference month: 2026-07 / This value does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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