Euglena Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥37.09B
• Operating Income: ¥2.62B
• Net Income: ¥-788M
• EPS: ¥-2.79

Income Statement

Balance Sheet

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: Solid operating turnaround with sharply higher operating profit, but bottom line dipped into a small net loss due to sizable below-ordinary items. Revenue grew 5.1% YoY to 370.86, driven by continued expansion in the core businesses. Gross profit reached 246.57, implying a robust 66.5% gross margin. SG&A was 244.97, essentially absorbing most of gross profit but allowing for positive operating leverage versus last year. Operating income surged to 26.18 (+963.6% YoY), translating to a 7.1% operating margin. Ordinary income was 21.44, indicating some non-operating drag (non-op income 2.53 vs non-op expenses 4.45; interest expense 3.41). Profit before tax swung to -7.68, implying substantial extraordinary losses (not disclosed) of roughly mid-20s to low-30s magnitude relative to ordinary profit. Net income was a small loss of -3.80, while total comprehensive income was positive at 2.96, helped by other comprehensive gains. Operating margin expanded by approximately 636 bps YoY (from about 0.7% to 7.1%), showing marked improvement in core profitability. Interest coverage improved to 7.68x (26.18/3.41), indicating manageable financing costs relative to operating earnings. Liquidity is strong: current ratio 248.8% and quick ratio 227.3%, underpinned by cash and deposits of 190.66. Balance sheet shows significant intangible assets (316.68) and goodwill (115.27), implying ongoing impairment risk and explaining sensitivity of net income to exceptional items. Despite total liabilities of 371.93 (D/E 1.14x), gross cash exceeds interest-bearing loans (167.18), indicating a net cash position of about 23.5. Retained earnings remain negative at -26.40, constraining dividend capacity absent sustained profitability. Forward-looking, the expanded operating margin and positive ordinary profit support a constructive core trend, but clarity on extraordinary loss drivers and cash flow generation will be key to sustaining momentum.

Profitability Analysis

ROE decomposition: ROE (-1.2%) = Net Profit Margin (-1.0%) × Asset Turnover (0.532×) × Financial Leverage (2.14×). The largest change YoY appears in net profit margin, given operating income rose +963.6% while the period ended in a small net loss due to extraordinary items; this indicates below-ordinary items dominated ROE movement. Business reason: strong core operations (higher operating margin) were offset by unspecified extraordinary charges, likely impairment or one-time losses tied to intangibles/goodwill-heavy assets. Sustainability: the operating margin improvement looks more sustainable than the net loss, which appears one-off; however, continued discipline on SG&A is required given SG&A remains 99% of gross profit (244.97 vs 246.57). Concerning trends: non-operating expenses (4.45) exceeded non-operating income (2.53) and interest expense (3.41) remains a headwind; extraordinary losses erased ordinary profits, making earnings volatile. Operating leverage is evident: revenue +5.1% YoY translated into operating income +963.6% and operating margin ~7.1% from ~0.7% prior, indicating improved cost efficiency and scale effects.

Growth Assessment

Revenue growth of 5.1% YoY to 370.86 demonstrates steady topline expansion. Gross margin at 66.5% suggests a favorable mix and/or pricing in higher-margin segments. Operating profit rose to 26.18, reflecting strong operating leverage as SG&A growth lagged the uplift in gross profit. However, ordinary income of 21.44 and net loss of -3.80 indicate that below-ordinary and extraordinary items constrained overall profit growth. Given the magnitude of extraordinary losses implied by PBT (-7.68) versus ordinary income (21.44), headline earnings growth is not yet normalized. Outlook: if extraordinary impacts abate, the improved operating margin provides a base for earnings recovery; sustaining mid-single-digit revenue growth with disciplined SG&A could support a return to positive net income. Key watchpoints include the durability of gross margin, trajectory of non-operating expenses (especially interest), and absence of further impairments.

Financial Health

Liquidity is strong: current ratio 248.8% and quick ratio 227.3%. Working capital totals 180.98, supported by cash and deposits of 190.66 against current liabilities of 121.60. No warning on current ratio (<1.0) or leverage (>2.0): D/E is 1.14x (total liabilities/equity), within conservative bounds. Interest-bearing loans total about 167.18 (short-term 38.03, long-term 129.15), offset by cash of 190.66, implying net cash of roughly 23.5. Maturity mismatch risk appears low near term: cash and current assets comfortably cover short-term loans and payables (AR 44.10, inventories 26.18, payables 15.45). Asset quality concentration: intangibles 316.68 and goodwill 115.27 are large relative to equity (325.18), elevating impairment risk. Noncurrent liabilities of 250.33 suggest ongoing financing commitments; details on covenants are not disclosed. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed. Free cash flow is also unreported, preventing direct coverage analysis for debt service or potential dividends. Earnings quality flags: reliance on extraordinary items to explain the gap between ordinary income (21.44) and net loss (-3.80) raises volatility in reported profits. Working capital indicators do not show stress: payables (15.45) are modest vs inventories (26.18) and receivables (44.10), limiting concerns about payables-stretching. Interest coverage based on operating profit is 7.68x, indicating operating cash generation is likely adequate to service interest in a normalized period. Without OCF, we cannot confirm whether the profit improvement is translating into cash.

Dividend Sustainability

No dividend data reported; payout ratios and FCF coverage are not calculable. Retained earnings are negative (-26.40), indicating accumulated deficits and constraining capacity to pay dividends under typical JGAAP capital policy norms. With net income at -3.80 for the period and cash flow unreported, near-term dividend sustainability cannot be established. Policy outlook will likely prioritize balance sheet strengthening and reinvestment over distributions until sustained net profitability rebuilds retained earnings.

Risk Assessment

Business Risks:

• Extraordinary loss exposure likely tied to large intangible and goodwill balances (316.68 and 115.27), implying impairment risk.
• Margin sustainability risk if SG&A discipline weakens; SG&A remains 99% of gross profit.
• Product mix and pricing risk affecting the 66.5% gross margin.
• Execution risk in scaling newer businesses (e.g., bio-related initiatives) to support operating margin gains.

Financial Risks:

• Earnings volatility from non-operating expenses (4.45) and interest expense (3.41) pressuring ordinary income.
• Negative retained earnings (-26.40) limiting financial flexibility for shareholder returns.
• Potential covenant or refinancing risks around 129.15 of long-term loans (details not disclosed).
• Impairment risk could trigger further extraordinary charges, affecting equity.

Key Concerns:

• Net loss (-3.80) despite strong operating profit due to sizable below-ordinary items.
• Lack of cash flow disclosure limits assessment of earnings quality and FCF sustainability.
• High proportion of intangible assets and goodwill heightens downside risk to book value.
• Ordinary income (21.44) to PBT (-7.68) gap suggests material one-off losses; recurrence risk unknown.
• Interest coverage depends on sustaining current operating margin; any margin compression would reduce the 7.68x buffer.

Investment Implications

Key Takeaways:

• Core operations improved markedly: operating income 26.18 (+963.6% YoY), operating margin ~7.1%.
• Revenue growth of 5.1% to 370.86 demonstrates steady topline momentum.
• Net loss of -3.80 driven by extraordinary items turning PBT to -7.68 despite ordinary income of 21.44.
• Balance sheet liquidity is strong (current ratio 248.8%; cash 190.66 > interest-bearing loans 167.18).
• Asset quality risk elevated: intangibles 316.68 and goodwill 115.27 (~133% of equity combined).

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of gross profit.
• Nature and size of extraordinary items; disclosure on impairment testing.
• OCF and FCF once reported; OCF/NI ratio for earnings quality.
• Interest expense trend and refinancing profile of 129.15 long-term loans.
• Gross margin durability and revenue growth in core segments.

Relative Positioning: Within Japan small/mid-cap health/biotech-consumer peers, the company shows improving operating leverage and strong liquidity but weaker reported bottom-line stability due to exceptional items and higher intangible asset risk.

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