STI Foods Holdings,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥28.47B
• Operating Income: ¥2.03B
• Net Income: ¥1.59B
• EPS: ¥109.06

Income Statement

Balance Sheet

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

Verdict: Mixed quarter with solid top-line growth and higher net profit, but weaker operating performance and signs of one-off support below the operating line. Revenue rose 8.1% YoY to 284.71, while operating income declined 13.8% YoY to 20.33. Gross profit reached 75.73, implying a gross margin of 26.6%. SG&A was 52.13, indicating cost pressure as operating margin compressed. Ordinary income fell 13.4% YoY to 20.59. Profit before tax was 23.90, exceeding ordinary income by 3.31, indicating contributions from items outside ordinary activities. Net income increased 22.2% YoY to 19.38, lifting net margin to 6.8%. Operating margin declined to 7.1% from an estimated 9.0% a year ago, a contraction of roughly 182 bps. Net margin expanded by about 78 bps YoY (to 6.8% from about 6.0%), supported by non-operating and/or extraordinary factors and the tax line rather than core operations. Interest expense remains very low (0.18), and interest coverage is strong at around 115x. Balance sheet liquidity is sound with a current ratio of 146.7% and quick ratio of 132.4%. Leverage is moderate with D/E of 1.24x; no red flags versus our benchmarks. ROE calculated via DuPont is high at 20.4%, primarily driven by efficient asset turnover (1.34x) and moderate leverage (2.24x) rather than high margins. Cash flow data were not disclosed, limiting assessment of earnings quality and dividend coverage. Dividend disclosures were absent, but the calculated payout ratio of 110.1% suggests potential unsustainability if repeated without stronger FCF. Overall, forward-looking focus should be on restoring operating margin, confirming the repeatability of below-the-line gains, and validating cash generation.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 6.8% × Asset Turnover 1.341 × Financial Leverage 2.24x = ROE 20.4%. The most notable shift this quarter is the divergence between operating margin (down) and net margin (up). Operating margin compressed to 7.1% (20.33/284.71), down roughly 182 bps YoY (prior ~9.0%), reflecting higher SG&A and/or mix pressure. Conversely, net margin expanded to 6.8% (from ~6.0%) because profit before tax (23.90) exceeded ordinary income (20.59) by 3.31 and non-operating net (+0.19) aided results, suggesting extraordinary or below-the-line gains offset weaker operations. Asset turnover is robust at 1.34x (284.71/212.32), supporting ROE despite margin pressure; leverage at 2.24x (assets/equity) amplifies returns without appearing excessive. This mix implies ROE quality relies more on turnover and leverage than on margin strength. The business reason for weaker operating margin likely includes input cost inflation, pricing/mix in processed foods, and higher selling expenses; meanwhile, non-operating/extraordinary support boosted PBT and NI. Sustainability: the margin compression is a concern if cost pass-through remains incomplete; the uplift from below-the-line items is likely non-recurring. Concerning trend flag: operating income -13.8% YoY vs revenue +8.1% YoY indicates negative operating leverage; SG&A growth appears to have outpaced gross profit expansion, compressing operating margin.

Growth Assessment

Revenue growth of 8.1% YoY to 284.71 indicates healthy demand and/or price pass-through. Gross profit of 75.73 at a 26.6% margin suggests some cost containment but not enough to prevent operating margin compression to 7.1%. Operating income fell 13.8% YoY, pointing to negative operating leverage and/or mix headwinds. Ordinary income decreased 13.4% YoY, but profit before tax exceeded ordinary income by 3.31, indicating contributions from non-core or extraordinary items. Net income rose 22.2% YoY to 19.38, with net margin improving to 6.8%—a quality caveat given the weaker core operations. Outlook hinges on restoring operating margin via pricing discipline, procurement and logistics optimization, and SG&A control. Without cash flow data, we cannot validate how much of growth reflects working capital investment versus sustainable demand. Near-term growth sustainability depends on maintaining volumes while realizing cost pass-through; any normalization of extraordinary gains would reduce net profit growth.

Financial Health

Liquidity: current ratio 146.7% and quick ratio 132.4% indicate adequate short-term coverage; no warning trigger (both >1.0), though current ratio is slightly below our 1.5x ‘healthy’ benchmark. Working capital is positive at 31.52, with current assets 98.97 vs current liabilities 67.45; AR 40.49 and inventory 9.67 comfortably exceed short-term loans (1.00), suggesting limited maturity mismatch risk. Solvency: D/E 1.24x is within conservative bounds (<1.5x). Long-term loans are 17.22 vs equity 94.87, implying manageable leverage; no immediate refinancing pressure indicated. Interest coverage is strong (~115x), and interest expense is minimal (0.18). Off-balance sheet obligations are not disclosed; no explicit guarantees/commitments reported in the provided data.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex were not reported, preventing OCF/NI and FCF assessment. As a result, earnings quality cannot be corroborated by cash conversion metrics (OCF/NI vs benchmark >1.0). The reliance on below-the-line contributions (PBT > ordinary income by 3.31) raises a quality flag absent corroborating OCF. Working capital indicators from the balance sheet (AR 40.49, inventory 9.67, AP 36.14) suggest net working capital is positive; without period changes we cannot assess whether NI was supported by payables stretching or inventory/receivables builds. Given the lack of OCF and capex data, FCF sustainability for dividends and growth capex cannot be determined.

Dividend Sustainability

Dividend per share and total dividends were unreported; however, the calculated payout ratio stands at 110.1%, which would be above our sustainable benchmark (<60%) if representative. With FCF unreported, coverage cannot be verified. If the payout includes special dividends or reflects a partial-period EPS base, it may be non-recurring; otherwise, sustaining >100% payout would likely require balance sheet support or increasing leverage, which is not desirable. Policy outlook is unclear from disclosures; balance sheet capacity exists but prudence suggests aligning payout with normalized FCF once operating margins recover.

Risk Assessment

Business Risks:

• Input cost volatility (seafood/raw materials, packaging, logistics) challenging margin pass-through
• Pricing/mix pressure in processed and frozen foods leading to negative operating leverage
• FX exposure on imported materials impacting COGS and gross margin
• Food safety and quality control risks (recalls, compliance)
• Customer concentration with major retailers/foodservice affecting bargaining power

Financial Risks:

• Earnings quality dependence on non-operating/extraordinary items (PBT > ordinary income by 3.31)
• Potentially elevated payout ratio (110.1%) vs unknown FCF, risking cash burn if maintained
• Moderate leverage (D/E 1.24x); while acceptable, reduced operating profit could pressure credit metrics if sustained
• Tax rate variability (current effective 33.6%) influencing net profit volatility

Key Concerns:

• Operating margin contraction of ~182 bps YoY despite 8.1% revenue growth
• Net profit growth driven partly by below-the-line items rather than core operations
• Absence of cash flow disclosure limits validation of earnings and dividend coverage

Investment Implications

Key Takeaways:

• Top-line growth strong at +8.1% YoY; core operating profitability weakened
• Operating margin down to 7.1% from ~9.0% YoY; net margin up to 6.8% helped by non-core items
• ROE robust at 20.4% on high asset turnover (1.34x) and moderate leverage (2.24x)
• Liquidity and solvency appear sound (CR 146.7%, D/E 1.24x, interest coverage ~115x)
• Dividend sustainability uncertain with a calculated payout ratio of 110.1% and no FCF data

Metrics to Watch:

• Operating margin and SG&A-to-sales trend
• Gross margin progression and input cost pass-through
• Operating cash flow and free cash flow once disclosed
• Inventory and receivables turns (days) vs payables discipline
• Magnitude and recurrence of extraordinary/non-operating gains
• Effective tax rate trajectory

Relative Positioning: Within Japan’s food processing/food distribution peer set, the company shows above-average ROE driven by asset efficiency and moderate leverage, but operating margins are mid-single digit and currently under pressure; balance sheet resilience is adequate, yet earnings quality is mixed due to reliance on below-the-line contributions.

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