PICKLES HOLDINGS CO.,LTD. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥31.82B
• Operating Income: ¥1.82B
• Net Income: ¥1.25B
• EPS: ¥100.50

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

AI Financial Analysis

Executive Summary

Verdict: Solid Q3 with margin-led profit growth despite flat topline. Revenue was 318.21 (100M JPY), up just 0.1% YoY, but operating income rose 39.0% to 18.23 (100M JPY), and net income increased 36.3% to 12.56 (100M JPY). Operating margin improved to 5.7% from 4.1% a year ago, a 160 bps expansion on better gross margin execution and tighter SG&A. Net margin rose to 3.9% from 2.9%, a 104 bps expansion, with non-operating items contributing modestly (net +0.51 (100M JPY)). Gross margin printed at 21.8%, and the SG&A ratio was approximately 16.1% of sales. The DuPont-calculated ROE is 6.3% (net margin 4.0% × asset turnover 1.051 × leverage 1.52x), indicating improvement driven primarily by margin expansion rather than leverage or turnover. Interest burden is benign (EBT/EBIT 1.03) and interest coverage is strong at 107x, underscoring a conservative balance sheet. Liquidity is healthy with a current ratio of 167% and cash/short-term debt of 8.6x; debt/capital is low at 13.2%. Notably, goodwill and intangible assets declined materially YoY, consistent with JGAAP amortization and/or impairment, while short-term borrowings were reduced by 30%, further de-risking the capital structure. Earnings quality cannot be fully validated because operating cash flow and capex are unreported; therefore, OCF/NI and FCF coverage are not assessable this quarter. Dividend payout appears conservative at 26.6% based on interim and year-end DPS guidance, likely sustainable under stable cash generation. Vertical B/S shows a manufacturing-heavy asset base (PPE ~57% of assets) and lean inventories (~1.2%), aligned with perishable fresh/processed vegetables. Forward look: pricing discipline and cost control appear to be gaining traction; sustainability hinges on raw vegetable input costs, energy/logistics, and the company’s ability to maintain pricing power without volume attrition. With leverage low and liquidity ample, the balance sheet can support steady capex and dividends. However, absent cash flow disclosure, we remain cautious on earnings quality verification and FCF coverage. Overall, Q3 demonstrates effective margin management and resilient bottom line in a low-growth environment.

Profitability Analysis

ROE (6.3%) decomposition: Net Profit Margin (≈3.9-4.0%) × Asset Turnover (1.051x) × Financial Leverage (1.52x). The largest delta YoY is margin: operating margin improved from ~4.1% to ~5.7% (+160 bps) and net margin from ~2.9% to ~3.9% (+104 bps), while leverage (~1.52x) and asset turnover (~1.05x) are broadly stable. Business drivers: modest non-operating tailwind (+0.51 (100M JPY) net) and lower interest burden, but the core uplift comes from operations—better gross-to-operating conversion and controlled SG&A. This likely reflects price pass-through, product mix optimization, and cost normalization (packaging/energy/logistics), typical after prior inflation spikes. Sustainability: partially sustainable if pricing holds and input costs remain stable; risk remains from volatile agricultural inputs and freight/energy. Watchpoints: SG&A grew slower than revenue (implied), which is favorable, but lack of YoY SG&A detail limits precision; if marketing/logistics reinflate, margins could retrace. Effective tax rate of 33.1% (tax burden 0.669) slightly drags ROE versus a 30% benchmark, and would persist absent structural tax changes.

Growth Assessment

Topline growth was essentially flat (+0.1% YoY) amid likely price/mix offsetting volume softness. Profit growth was robust: operating income +39% and net income +36%, primarily margin-led rather than volume-driven, which is positive for near-term EPS but sensitive to cost and pricing dynamics. The gross margin of 21.8% signals improved cost capture, and non-operating contributions were minor; thus, quality of profit growth appears operational. Category/channel mix, export exposure, and private-label balance are unreported; thus, sustainability of revenue is uncertain if consumers downtrade or retailers push PB. For the food sector, continued price realization without demand elasticity bite is key; stable vegetable procurement and logistics cost trends will determine durability. Outlook implication: with a lean balance sheet, the company can keep investing in automation and cold-chain/logistics to protect unit costs, but revenue reacceleration likely requires new product innovation and channel expansion.

Financial Health

Liquidity is strong: current ratio 167% and quick ratio 162% comfortably exceed benchmarks; no warning flags (both >1.0). Cash and deposits of 59.94 (100M JPY) cover short-term loans (7.00) 8.6x, minimizing near-term refinancing risk. Solvency: D/E 0.52x and debt/capital 13.2% indicate conservative gearing; interest-bearing debt totals 30.12 with long-term loans 23.12, matched by healthy cash generation potential (though OCF unreported). Equity-to-asset ratio is approximately 65.6% (calculated from totals), reflecting a robust capital base. Maturity profile shows limited mismatch risks given sizeable cash and receivables (47.59) vs current liabilities (68.87) and modest short-term debt. Notable B/S changes: goodwill (-70%) and intangibles (-44%) suggest amortization/impairment under JGAAP—non-cash but watch for write-downs; short-term loans (-30%) reflect deleveraging. No off-balance-sheet obligations disclosed in the data. Overall financial flexibility is high, supporting capex and dividends.

Notable B/S Changes

Goodwill: -0.75 (100M JPY) (-70.1%) - Likely JGAAP amortization and/or impairment; non-cash but monitor for further write-downs affecting reported profit. Intangible Assets: -0.82 (100M JPY) (-44.1%) - Amortization continues; reduces accounting profit but improves balance sheet quality. Short-term Loans: -3.00 (100M JPY) (-30.0%) - Deleveraging improves liquidity and reduces refinancing risk.

Cash Flow Quality

OCF, capex, and FCF are unreported, so OCF/Net Income and FCF coverage cannot be assessed this quarter. This is a key limitation given the margin-led profit improvement—verification via cash conversion would normally be required. Working capital indicators from the balance sheet appear stable with ample cash and manageable payables (32.54) relative to receivables (47.59), but without period cash flows, we cannot identify timing effects or potential working capital pulls that may have supported earnings. No clear signs of working capital manipulation can be inferred from static balances alone. Until OCF is disclosed, we cannot confirm whether earnings quality meets the >1.0 OCF/NI benchmark.

Dividend Sustainability

Interim DPS is 12 JPY and year-end DPS 14 JPY, implying 26 JPY annual. The calculated payout ratio is ~26.6% using average shares, comfortably below the <60% benchmark and consistent with a conservative policy. With low leverage and strong liquidity, dividends appear covered by earnings; however, FCF coverage cannot be confirmed without OCF/capex data. Absent aggressive capex or M&A, current payout looks sustainable. Key watchpoints: cash conversion, capex intensity (automation/cold-chain), and any inventory normalization that could temporarily weigh on OCF.

Risk Assessment

Business risks include Raw vegetable procurement volatility due to weather and seasonality impacting gross margin, Energy and logistics cost fluctuations affecting manufacturing and distribution costs, Retailer private-brand competition pressuring pricing and shelf space, Consumer downtrading risk in a weak macro, challenging price realization, Product recall/food safety risk inherent to fresh/processed foods.

Financial risks include Earnings quality uncertainty due to unreported OCF/FCF metrics, Potential intangible/goodwill impairments (amortization under JGAAP will continue to depress accounting profit), Interest rate risk is limited but present on floating-rate debt (though leverage is low), Customer credit concentration risk reflected in receivables if large retailers concentrate purchases.

Key concerns include Sustainability of margin gains if input costs re-inflate or price increases face elasticity, Lack of cash flow disclosure obscures verification of profit-to-cash conversion, Inventory levels are low relative to assets; any harvest shocks could disrupt supply and sales.

Investment Implications

Key takeaways include Margin-driven profit beat with operating margin up ~160 bps YoY to 5.7% despite flat sales, ROE at 6.3% is improving but still below 8% threshold; margin is the lever, not leverage or turnover, Balance sheet is very strong: D/E 0.52x, cash/ST debt 8.6x, equity-to-asset ~66%, Deleveraging and amortization reduced short-term loans and intangibles; accounting drag but improves resilience, Dividend payout ~27% appears sustainable under normalized cash generation, pending OCF disclosure.

Metrics to watch include OCF and FCF (cash conversion, working capital swings), Gross margin and SG&A ratio to confirm operating leverage persistence, Raw vegetable input prices and procurement stability, Energy/logistics costs and hedging/contracting outcomes, Volume trends and price elasticity post-price adjustments, Capex plans vs depreciation to gauge growth vs maintenance spend.

Regarding relative positioning, Within Japan food processors, the company shows stronger balance sheet conservatism and improving margins but remains sub-scale on ROE versus top-tier peers; visibility on cash conversion lags due to disclosure gaps.