| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥4132.2B | ¥3898.6B | +6.0% |
| Operating Income / Operating Profit | ¥449.0B | ¥309.0B | +45.3% |
| Profit Before Tax | ¥459.8B | ¥315.7B | +45.6% |
| Net Income | ¥313.1B | ¥230.1B | +36.1% |
| ROE | 2.8% | 2.1% | - |
Kao Corporation's 2026 FY Q1 results delivered revenue of ¥4,132.2B (YoY +¥233.7B +6.0%), Operating Income of ¥449.0B (YoY +¥140.0B +45.3%), Ordinary Income of ¥459.8B (YoY +¥144.2B +45.6%), and Net income attributable to owners of parent of ¥309.9B (YoY +¥81.5B +35.7%), achieving higher revenue and substantial profit growth. Operating margin improved to 10.9% (prior 7.9%), a roughly 3.0pt improvement, and Gross Profit Margin rose to 38.4% (prior 38.0%). Other operating income increased materially to ¥166.5B (prior ¥44.5B), with gains on sales of tangible fixed assets (cash proceeds from disposals of ¥141.1B in investing CF) lifting profits. The Global Consumer Care (consumer products) segment drove revenue and profit growth; Cosmetics saw a sharp recovery with Operating Income up +467.1% YoY, while the Chemicals segment lagged with Operating Income down -55.3% YoY. Progress against full-year guidance stands at 23.6% of Revenue and 24.7% of Operating Income, in line with seasonal norms (~25%), and guidance attainability is maintained.
【Revenue】 Revenue of ¥4,132.2B (+6.0% YoY) reflected increases across all segments: Global Consumer Care business ¥3,068.2B (+6.2%) and Chemicals business ¥1,064.0B (+5.4%). By segment, Hygiene & Living Care ¥1,289.7B (+3.6%), Health & Beauty Care ¥1,064.7B (+8.8%), Cosmetics ¥628.9B (+7.9%), Business Connected ¥85.0B (+3.1%). Price revisions and expanded sales of higher-value products contributed, supported by overseas operations and FX effects.
【Profitability】 Operating Income of ¥449.0B (+45.3% YoY) was driven by a 0.4pt improvement in Gross Profit Margin (to 38.4%) and a large increase in Other Operating Income (+¥122.0B). SG&A totaled ¥1,264.3B (30.6% of sales), up ¥8.7B YoY, with the SG&A-to-sales ratio rising only +0.4pt from 30.2% prior. Other Operating Income of ¥166.5B included gains on sales of tangible fixed assets (¥141.1B cash proceeds in investing CF), indicating one-off factors that boosted profit. Equity in earnings of affiliates was ¥11.5B, financial income ¥0.1B, financial expenses ¥14.3B, producing Ordinary Income of ¥459.8B (+45.6%). After income taxes of ¥146.7B (effective tax rate 31.9%), Net income attributable to owners of parent was ¥309.9B (+35.7%). Profitability benefited from asset sale gains and easing raw material/logistics costs improving gross margins, but SG&A growing at +7.4% outpaced revenue growth (+6.0%), indicating rising structural costs. In conclusion, revenue increased and profits expanded sharply, but part of the profit gain depended on one-off items.
Hygiene & Living Care posted Operating Income of ¥195.5B (+16.9% YoY), maintaining high profitability with a margin of 15.2% aided by pricing and cost efficiencies. Health & Beauty Care posted Operating Income of ¥79.2B (+17.4%), margin 7.4%, driven by increased sales of skin care and hair care products. Cosmetics recovered sharply with Operating Income of ¥20.9B (prior ¥3.7B, +467.1%), margin 3.3%, improving through both counseled cosmetics and self-service cosmetics channels. Business Connected turned marginally profitable with Operating Income of ¥0.9B (+196.9%). Chemicals lagged with Operating Income ¥36.0B (-55.3%), margin 3.4%, hit by weak market conditions for oils/fats and fragrance products and deteriorating margins in functional materials. Intersegment adjustments were ¥116.6B (prior ¥0.3B), reflecting the large increase in Other Operating Income and company-wide cost allocations. The consumer products business remains superior in margin and growth, while the Chemicals business continues to weigh on consolidated profitability.
【Profitability】Operating margin 10.9% (prior 7.9%, +3.0pt), Gross Profit Margin 38.4% (prior 38.0%, +0.4pt), Net margin 7.5% (prior 5.9%, +1.6pt) — significant improvement. 【Cash Quality】Operating Cash Flow (OCF) was -¥167.6B, with OCF/Net Income at -0.54x indicating low cash quality. Large working capital outflows (Other working capital -¥335.3B, accounts payable decrease -¥67.1B) and tax payments -¥310.9B were pressure points. EBITDA (adding depreciation etc. ¥223.1B) is approx. ¥672B, but OCF is negative, showing weak cash conversion. 【Capital Efficiency】ROE 2.8% (prior period approx. 2.2%) remains low, driven by Net margin 7.5% × Total asset turnover 0.226 × Financial leverage 1.66x. Total assets ¥18,311.6B vs. Revenue ¥4,132.2B (annualized ≈ ¥16,528.8B) shows low turnover constraining returns. EPS ¥68.53 (prior ¥49.19, +39.3%), BPS ¥2,371.02 (prior ¥2,352.49). 【Financial Soundness】Equity Ratio 58.6% (prior 56.7%). Net D/E: Bonds & borrowings (current ¥516.3B + non-current ¥805.8B = ¥1,322.1B) - Cash ¥2,748.4B = -¥1,426.3B, i.e., net cash. Interest coverage approx. Operating Income ¥449.0B / Financial expenses ¥14.3B ≈ 31x, robust. Goodwill ¥2,338.5B (21.2% of equity), EBITDA approx. ¥672B implies ~3.5x, recovery burden within acceptable range.
OCF was -¥167.6B (improved +15.7% from prior -¥198.9B but still negative). Despite Operating Income ¥449.0B and Depreciation etc. ¥223.1B totaling roughly ¥672B, cash conversion was weak. Starting from subtotal before working capital changes of ¥143.3B, cash outflows included tax payments -¥310.9B, other working capital changes -¥335.3B, decrease in accounts payable -¥67.1B, inventory increase -¥57.1B, with FX translation effects +¥41.9B and lease payments -¥57.9B, resulting in final OCF -¥167.6B. Investing CF was +¥54.1B, supported by proceeds from sale of tangible fixed assets ¥141.1B, offsetting CAPEX -¥134.0B, intangible assets acquisition -¥14.2B, and net increase in time deposits -¥18.8B. Free Cash Flow was -¥113.5B, negative, and dividend payments ¥343.1B and CAPEX are not being covered by internal funds. Financing CF was -¥412.9B, including dividend payments -¥343.1B, non-controlling interests dividend -¥7.7B, lease repayments -¥57.9B, long-term borrowings repayment -¥0.0B, short-term borrowings increase +¥5.6B. Cash & cash equivalents decreased to ¥2,748.4B (prior ¥3,232.8B, -¥484.4B, -15.0%); including FX effects +¥41.9B, net decrease was -¥526.3B. Improving working capital efficiency (compressing DSO/DIO/CCC) and smoothing tax cash flows are priorities; proceeds from asset sales are unlikely to be repeatable, so restoring sustainable cash generation is the focus.
Of Operating Income ¥449.0B, Other Operating Income ¥166.5B (prior ¥44.5B) rose substantially; the bulk of this was gains on sales of tangible fixed assets (investing CF proceeds ¥141.1B, and in OCF adjustments disposal gain -¥112.1B reconciled). Compared to prior Other Operating Income ¥44.5B, this is approx. ¥122B increase, implying recurring Operating Income of roughly ¥330B and that one-off items boosted profit by about ¥120B. Financial income ¥0.1B and financial expenses ¥14.3B mean non-operating items are minor (0.3% of sales), and Ordinary Income ¥459.8B follows operating trends. Profit Before Tax ¥459.8B vs. Net Income ¥313.1B yields an effective tax rate of 31.9%, within norms. OCF -¥167.6B versus Net Income ¥313.1B gives an accrual ratio (Net Income - OCF)/Total Assets = (313.1 - (-167.6)) / 18,311.6 = 2.6%, low, indicating limited accounting discretion, but delayed working-capital cash conversion and tax cash burdens distort quality. The large increase in Other Operating Income imposes a transitory risk to earnings quality; judgment on core operating profit and sustainability after these items is necessary.
Full-year guidance (Revenue ¥17,500.0B, Operating Income ¥1,820.0B, Net income attributable to owners of parent ¥1,300.0B) implies Q1 progress of Revenue 23.6%, Operating Income 24.7%, Net Income 23.8%. All align with seasonal norms (Q1 ≈ 25%) and show no deviation >±10%, indicating a smooth start. Year-on-year vs. guidance: Revenue +3.6%, Operating Income +11.3%, Net Income +8.3%, suggesting profit growth weighted to the second half. Q1 Operating margin 10.9% exceeds the full-year forecast margin of 10.4% (1,820/17,500), implying upside to full-year margin depending on the persistence of asset-sale gains and raw material/FX trends. Dividend guidance is annual ¥78.00 (post-split; equivalent to ¥156.00 pre-split), with a payout ratio approx. 54% against forecast EPS ¥143.70, within sustainable range. No revisions to guidance at Q1; attainability of guidance is maintained for now.
Dividend payments in Q1 were ¥343.1B, assuming 454M shares outstanding (4.54億株; excluding treasury shares 452M shares), equivalent to ¥77 per share. Full-year dividend guidance is ¥78.00 (post-split; equivalent to annual ¥156.00 pre-split), implying total dividends of approx. ¥708B (4.54億株 × ¥156) and a payout ratio of ~54% against full-year Net Income guidance ¥1,300.0B. Share buybacks were negligible in Q1 (CF statement shows -¥0.0B), so Total Return Ratio is essentially the same as payout ratio. Dividend policy prioritizes stable dividends; on a full-year basis, sustainability assumes improvements in OCF and proceeds from asset sales. Q1 Free Cash Flow -¥113.5B vs. dividend payments ¥343.1B means dividends were not covered by internal funds, financed from cash ¥2,748.4B. A stock split (record date 30 June 2026, effective 1 July, 1→2 shares) sets year-end dividend at post-split ¥78 and annual dividends as Q2-end ¥77 + year-end ¥78 = ¥155 (equivalent to pre-split total ¥156), effectively unchanged. Working capital improvement and OCF recovery are key to sustainability.
Weak working capital efficiency and cash generation: OCF -¥167.6B, OCF/Net Income -0.54x indicates low cash quality, with working capital outflows (accounts payable -¥67.1B, other working capital -¥335.3B) and tax payments -¥310.9B as pressures. Inventory ¥3,003.0B (prior ¥2,923.7B, +2.7%) suggests elevated DIO. If full-year CCC (DIO+DSO-DPO) improvement is delayed, liquidity and dividend sustainability could be constrained.
Transitory contribution from Other Operating Income and earnings quality risk: Other Operating Income ¥166.5B (prior ¥44.5B) mainly reflects gains on sale of tangible fixed assets (investing CF proceeds ¥141.1B), implying recurring operating income of approx. ¥330B. To reach full-year Operating Income guidance ¥1,820B, maintaining underlying margins and cost control after the loss of disposal gains is essential. Continued SG&A growth (+7.4%) outpacing Revenue growth (+6.0%) poses a margin deterioration risk if it persists.
Prolonged weakness in Chemicals segment and portfolio risk: Chemicals Operating Income ¥36.0B (prior ¥80.7B, -55.3%), margin 3.4%, remains weak. Continued deterioration in oils/fats and fragrance markets and functional materials profitability would weigh on consolidated profit mix. While consumer products performance offsets some pressure, delayed recovery in Chemicals is a downside risk to full-year guidance.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 10.9% | 6.8% (2.9%–9.0%) | +4.0pt |
| Net Margin | 7.6% | 5.9% (3.3%–7.7%) | +1.7pt |
Operating margin 10.9% exceeds the manufacturing median 6.8% by +4.0pt, indicating industry-leading profitability. Net margin 7.6% also exceeds the median 5.9% by +1.7pt, supporting competitive advantage on margins.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 6.0% | 13.2% (2.5%–28.5%) | -7.2pt |
Revenue growth of 6.0% trails the median 13.2% by -7.2pt, placing the company below median growth despite high profitability.
※Source: Company aggregation
While Operating margin improved to 10.9% (prior 7.9%, +3.0pt) and profits rose sharply, Other Operating Income ¥166.5B (prior ¥44.5B) is largely gains on sale of tangible fixed assets and thus transitory. Core Operating Income is estimated at roughly ¥330B post-adjustment. Achieving full-year Operating Income guidance ¥1,820B will require second-half gross margin improvement and continued cost control. Price measures and eased raw material/logistics costs supported margins, but SG&A growth (+7.4%) outpacing revenue growth (+6.0%) indicates expanding base costs and warrants monitoring.
OCF -¥167.6B and OCF/Net Income -0.54x indicate low cash quality. Working capital outflows (accounts payable -¥67.1B, other working capital -¥335.3B) and tax payments -¥310.9B pressured cash. Free Cash Flow -¥113.5B vs. dividends ¥343.1B used cash reserves of ¥2,748.4B (net cash). Improving working capital efficiency (DSO/DIO/CCC) and normalizing OCF are critical to dividend sustainability and investment capacity. Chemicals segment Operating Income down -55.3% drags on consolidated mix; sustained strength in consumer products and cosmetics recovery will determine upside to full-year results.
This report was automatically generated by AI analyzing XBRL financial statement disclosure data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are aggregated by the firm from public financial statements and are provided for reference. Investment decisions are your responsibility; consult a professional advisor as needed.