Nippon Paper Industries Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥589.22B
• Operating Income: ¥9.01B
• Net Income: ¥-11.09B
• EPS: ¥6.54

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

Nippon Paper (TSE:3863) reported FY2026 Q2 consolidated results showing modest top-line growth and a sharp rebound in operating profit, but profitability remains thin and leverage elevated. Revenue rose 0.8% year over year to ¥589.2bn, reflecting a generally stable demand backdrop with pricing and mix likely offsetting volume softness in domestic printing and communication papers. Gross profit came in at ¥86.7bn, implying a gross margin of 14.7%, which is reasonable for a pulp and paper producer given energy and raw material cost normalization versus the prior year. Operating income surged 338% YoY to ¥9.0bn, lifting operating margin to 1.5%; the large delta suggests cost pass-through and internal cost control rather than strong volume growth. Ordinary income was ¥8.5bn, below operating income after accounting for financial and other non-operating items, highlighting ongoing interest burden. Net income was just ¥0.8bn (net margin 0.13%), indicating sizable below-the-line headwinds (e.g., extraordinary losses or affiliates) under JGAAP between ordinary and net income. DuPont metrics show a very low calculated ROE of 0.15%, driven by razor-thin net margins, moderate asset turnover (0.35x), and relatively high financial leverage (3.38x). Liquidity appears adequate with a current ratio of 1.33x and quick ratio of 1.08x, supported by positive working capital of ¥159.1bn. The balance sheet shows total assets of ¥1.68tn and total equity of ¥498.2bn, implying an equity ratio of roughly 29.6% and liabilities-to-equity of 2.39x, which constrains financial flexibility amid cyclical earnings. Interest expense of ¥4.3bn yields an interest coverage of about 2.1x based on operating income—an improvement but still only moderate for a cyclical, capital-intensive industry. Cash flow details, depreciation/amortization, and EBITDA were not disclosed in the provided XBRL line items, limiting visibility on earnings quality, capex intensity, and free cash flow. Dividend data were also not provided in usable form here, so payout policy assessment relies on earnings rather than cash metrics. Overall, the quarter shows improving operating profitability from cost normalization and price management, but low net profit and leverage leave limited margin for adverse shocks. The key swing factors remain pulp and energy costs, exchange rates, and the pace of structural decline in printing paper versus growth in packaging, household, and biomass/renewables segments. Without operating cash flow and capex data, sustainability of the operating recovery cannot be fully validated. Near-term outlook hinges on maintaining price discipline and further cost efficiencies while containing extraordinary losses and financing costs.

Profitability Analysis

roe_decomposition: ROE 0.15% = Net margin 0.13% × Asset turnover 0.35× × Financial leverage 3.38×. The primary drag is the very low net margin; asset use is typical for the sector, while leverage amplifies minimal returns. margin_quality: Gross margin is 14.7% (¥86.7bn/¥589.2bn). Operating margin is 1.5% (¥9.0bn/¥589.2bn), reflecting improved cost pass-through versus prior year. Net margin of 0.13% indicates sizeable below-the-line charges (e.g., extraordinary losses) and interest burden. The gap from operating to ordinary to net income suggests non-operating costs and exceptional items are diluting core earnings. operating_leverage: Revenue grew 0.8% YoY while operating income rose 338% YoY, implying strong operating leverage from cost normalization and pricing discipline. This sensitivity cuts both ways—adverse input cost or price pressure could rapidly compress margins.

Growth Assessment

revenue_sustainability: Top-line growth of 0.8% YoY suggests stable pricing and resilient segments (packaging, household products) offset secular declines in printing paper. Sustainability depends on continued price discipline and product mix shift. profit_quality: Operating profit improved substantially to ¥9.0bn, but net profit of ¥0.8bn remains thin due to interest and below-the-line items. Absence of D&A and cash flow disclosures limits validation of recurring earnings versus one-offs. outlook: If energy and pulp input costs remain benign and price increases hold, operating margin could remain above prior-year troughs. However, high financial leverage and potential extraordinary losses present downside risk to net income even if operations are stable.

Financial Health

liquidity: Current assets ¥638.3bn vs current liabilities ¥479.2bn yield a current ratio of 1.33x and quick ratio of 1.08x. Working capital is ¥159.1bn, offering a reasonable liquidity buffer. solvency: Total liabilities ¥1.193tn vs equity ¥498.2bn imply liabilities/equity of 2.39x and an equity ratio near 29.6%. Interest expense ¥4.3bn vs operating income ¥9.0bn gives interest coverage ~2.1x—improved but not robust for a cyclical industry. capital_structure: Leverage is high for a low-margin business, constraining flexibility for strategic capex or downturns. Equity base of ¥498.2bn supports operations, but deleveraging would improve resilience and interest coverage.

Cash Flow Quality

earnings_quality: Core operating improvement is visible in P&L, but lack of disclosed operating cash flow and depreciation/amortization prevents assessment of cash conversion and non-cash earnings contributions. fcf_analysis: Free cash flow cannot be assessed without operating cash flow and capex. Given industry capex intensity, sustaining FCF will require continued margin discipline and working-capital control. working_capital: Inventories are ¥120.6bn, and overall working capital is ¥159.1bn. Inventory management and receivables collection remain key to cash generation in a low-margin environment.

Dividend Sustainability

payout_ratio_assessment: Dividend information was not effectively disclosed here; payout ratio assessment cannot be made from cash perspective. Given EPS of ¥6.54 for the period and thin net margin, capacity for distributions depends on improved profitability and cash generation. fcf_coverage: Undeterminable due to missing operating and investing cash flow disclosures. Coverage should be reassessed once OCF and capex are available. policy_outlook: With leverage elevated and interest coverage modest, a conservative capital return stance would be consistent with balance sheet repair; however, actual policy cannot be inferred from the provided data.

Risk Assessment

Business Risks:

• Volatility in global pulp prices impacting input costs
• Energy and fuel cost fluctuations (coal, LNG, electricity)
• Secular decline in printing and communication paper demand
• Price competition in domestic paper and packaging markets
• Foreign exchange movements affecting imported inputs and overseas operations
• Regulatory and environmental compliance costs (emissions, biomass/renewables)
• Operational execution on portfolio shift to packaging, household, and materials
• Potential for extraordinary losses (impairments, restructuring) under JGAAP

Financial Risks:

• High leverage (liabilities/equity 2.39x) limiting financial flexibility
• Modest interest coverage (~2.1x) exposing earnings to rate or profit shocks
• Refinancing risk and potential covenant constraints in a cyclical downturn
• Cash flow visibility limited due to undisclosed OCF and capex
• Pension and other long-term obligations typical in the sector

Key Concerns:

• Very low net margin (0.13%) despite improved operating income
• Gap between ordinary income and net income indicating below-the-line pressures
• Absence of cash flow and depreciation data, limiting assessment of earnings quality and FCF
• High balance sheet leverage amplifying cyclical risk

Investment Implications

Key Takeaways:

• Revenue stable (+0.8% YoY) with improving operating margin to 1.5%
• Operating income recovery (+338% YoY) driven by cost normalization and pricing
• Net income remains minimal (¥0.8bn), implying extraordinary or non-operating headwinds
• Leverage is high (liabilities/equity 2.39x) with moderate interest coverage (~2.1x)
• Liquidity adequate (current ratio 1.33x; quick ratio 1.08x), but cash flow data not disclosed

Metrics to Watch:

• Operating margin and ordinary income progression
• Pulp and energy cost indices; USD/JPY impact on imported inputs
• Working capital efficiency (inventory and receivables days)
• Disclosure of operating cash flow and capex; FCF generation
• Extraordinary items and impairment charges affecting net income
• Debt maturity profile and interest expense trajectory

Relative Positioning: Within the Japanese pulp and paper peer set, Nippon Paper shows improving operating performance but remains constrained by thin net margins and higher leverage; maintaining price discipline and executing portfolio shifts toward packaging and materials are critical to closing the profitability gap versus stronger peers.

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