TSUMURA & CO. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥89.90B
• Operating Income: ¥17.12B
• Net Income: ¥12.94B
• EPS: ¥166.65

Income Statement

Balance Sheet

Cash Flow Statement

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: Soft quarter with resilient topline (+0.9% YoY) but clear margin compression and weaker earnings quality, leading to double‑digit declines in OP, OI, and NP. Revenue was 898.97, gross profit 434.79, and operating income 171.19 (−18.8% YoY), implying an operating margin of roughly 19.0%. Ordinary income fell to 164.19 (−29.8% YoY) as non‑operating expenses (13.38) exceeded non‑operating income (6.37). Net income decreased to 124.77 (−28.7% YoY), with an effective tax rate of 27.5%. Using the YoY bridge, operating margin contracted about 460 bps YoY (from ~23.6% to ~19.0%), indicating significant negative operating leverage. Gross margin is a still‑healthy 48.4%, but SG&A intensity rose, compressing operating margin despite stable revenue. EBITDA was 227.82 with a 25.3% margin, cushioning but not offsetting SG&A and non‑operating drags. Cash flow quality weakened: OCF was 99.12 versus net income 124.77, giving OCF/NI of 0.79 (<0.8 flag), suggesting earnings are not fully cash‑backed this half. Balance sheet strength remains solid with a current ratio of 301% and D/E of 0.58x; interest coverage is strong at 49.5x. However, ROE is a subdued 3.8% and ROIC 3.9% (warning threshold <5%), underscoring capital efficiency challenges. Total comprehensive income was only 13.19, far below net income, implying sizable negative OCI (likely valuation or FX‑related) eroding equity growth. Capital allocation leaned shareholder‑friendly but cash‑consumptive: buybacks of 61.30 alongside high payout ratio (83.7%) against thin cash generation. Financing cash inflows (189.29) likely underwrote shareholder returns amid a proxied negative FCF (OCF 99.12 minus capex 105.82 ≈ −6.7). Near‑term, management likely must balance returns with cash preservation given margin pressure and sub‑5% ROIC. Forward‑looking, key to recovery will be SG&A discipline, normalization of working capital to lift OCF/NI above 1.0, and initiatives that raise ROIC toward a 7–8% target. Without improvement in cash conversion and margins, dividend sustainability risk rises over the medium term.

Profitability Analysis

ROE (3.8%) decomposition: Net Profit Margin (13.9%) × Asset Turnover (0.174) × Financial Leverage (1.58x) = ~3.8%. The most material drag YoY is margin compression at the operating level: operating income fell 18.8% on revenue +0.9%, implying about 460 bps operating margin contraction (from ~23.6% to ~19.0%). Business driver: higher SG&A intensity and slightly higher non‑operating burden (non‑operating expenses > income) more than offset stable gross profitability. Sustainability: part cyclic (non‑operating items) but SG&A creep relative to revenue is structural unless cost actions are taken; thus, absent cost control or mix/pricing tailwinds, current margin level may persist. Asset turnover at 0.174 is low and unchanged in the near term given asset base (intangibles, goodwill, and working capital) relative to sales; operational improvements to turnover are likely gradual. Financial leverage at 1.58x is moderate and stable; leverage is not the primary ROE lever. Concerning trends: OP decline outpaced revenue growth, indicating negative operating leverage; OI declined more than OP due to net non‑operating expense; ROIC at 3.9% is below cost of capital proxies. Watch that SG&A growth appears to be above revenue growth, pressuring operating margin.

Growth Assessment

Revenue grew 0.9% YoY to 898.97, indicating a stable but subdued demand environment. Operating profit fell 18.8% YoY to 171.19, signaling cost pressure and/or weaker price/mix. Ordinary and net profit fell 29.8% and 28.7% respectively, magnified by net non‑operating expense and possibly FX/valuation effects. Operating margin is ~19.0%, down from ~23.6% a year ago, reflecting negative operating leverage. EBITDA margin of 25.3% remains healthy but below the prior year implied level. Profit quality is mixed: net margin is 13.9%, but OCF/NI at 0.79 suggests weaker cash conversion this half. Outlook hinges on SG&A control, normalization of working capital to restore OCF/NI >1.0, and pricing/volume recovery in core products. Absent these, earnings growth may lag revenue. Near‑term catalysts could include cost initiatives, product mix upgrades, and stabilization of non‑operating items. Medium‑term growth requires ROIC uplift via tighter capital discipline and focused investment returns.

Financial Health

Liquidity is very strong: current ratio 300.9% and quick ratio 280.1%; no warning triggers (CR well >1.0). Working capital is ample at 2,077.07. Solvency is conservative: D/E 0.58x and interest coverage 49.48x; Debt/EBITDA at 2.66x within healthy bounds. Total liabilities are 1,899.98 versus total assets of 5,164.86; equity totals 3,264.87. Maturity mismatch risk appears low: current assets (3,110.75) comfortably exceed current liabilities (1,033.68), with cash and deposits at 724.91 and receivables at 757.04 providing strong coverage relative to short‑term loans of 335.49 and accounts payable of 239.22. Intangibles and goodwill are sizable (intangible assets 376.03 and goodwill 282.57), introducing potential impairment sensitivity if earnings weaken. No off‑balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF was 99.12 against net income of 124.77, yielding OCF/NI of 0.79 (flag). This points to weaker cash conversion, likely due to working capital outflows (specific line‑item drivers not disclosed). Capex was 105.82; a simple FCF proxy (OCF − capex) is approximately −6.7, indicating insufficient internal funding for shareholder returns this half. Financing CF of 189.29 suggests reliance on external funding to support dividends and buybacks. With EBITDA at 227.82 and interest expense at 3.46, interest is well covered, but sustaining both elevated capex and high shareholder returns requires improved OCF. No explicit signs of working capital manipulation can be confirmed from the limited disclosure, but monitor receivables and inventory turnover in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 83.7%, above the <60% comfort benchmark, implying a stretched distribution relative to earnings. DPS specifics were unreported, and total dividends paid were not disclosed, limiting precision. On cash metrics, proxied FCF was negative this half (−6.7), and OCF/NI was 0.79, indicating weak cash coverage of dividends. Share repurchases totaled 61.30, further increasing cash outflows; financing inflows (189.29) appear to have supported shareholder returns. Sustainability outlook: near‑term dividends may be maintained if financing access remains and OCF improves; however, medium‑term prudence may require aligning payouts with internally generated FCF unless margins and cash conversion recover.

Risk Assessment

Business Risks:

• Pricing and reimbursement pressure (e.g., NHI drug price revisions) compressing margins
• Cost inflation in raw herbal materials and supply chain logistics
• Dependence on stable demand for core Kampo formulations; limited volume growth
• Intangible and goodwill impairment risk if profitability underperforms
• Affiliate/portfolio valuation swings impacting OCI and comprehensive income

Financial Risks:

• Earnings quality risk: OCF/NI at 0.79 below healthy threshold
• High payout ratio (83.7%) alongside negative proxied FCF, increasing reliance on financing
• ROIC at 3.9% below 5% warning level, raising capital efficiency concerns
• Potential FX sensitivity in procurement and financial assets impacting non‑operating/OCI
• Refinancing or rate risk if debt is used to fund shareholder returns (though current coverage is strong)

Key Concerns:

• About 460 bps YoY operating margin compression on minimal revenue growth
• Total comprehensive income (13.19) far below net income (124.77), signaling sizable OCI losses
• Sustained SG&A intensity vs revenue, indicating negative operating leverage
• Low asset turnover (0.174) limiting ROE uplift absent margin or leverage changes

Investment Implications

Key Takeaways:

• Topline stable but profit pool compressed; OP −18.8% on +0.9% revenue
• Operating margin down to ~19.0% (≈−460 bps YoY) on higher SG&A intensity
• OCF/NI at 0.79 highlights weaker cash conversion; proxied FCF negative
• Balance sheet liquidity and coverage are strong; solvency not an immediate issue
• Capital efficiency subdued: ROE 3.8%, ROIC 3.9% (below threshold)
• Shareholder returns (high payout, buybacks) currently reliant on financing inflows
• Large negative OCI drove comprehensive income materially below net income

Metrics to Watch:

• Operating margin trajectory and SG&A/revenue ratio
• OCF/NI and working capital turns (AR and inventory days)
• ROIC progression toward ≥7–8%
• Debt/EBITDA and interest coverage amid shareholder returns
• OCI volatility (securities valuation and FX effects)
• Capex discipline and FCF coverage of dividends

Relative Positioning: Within Japan healthcare/OTC/Kampo peers, the company retains a strong balance sheet and liquidity but underperforms on capital efficiency (ROIC <5%) and cash conversion this half. Profitability remains respectable on an absolute basis, yet margin compression and high payout policy reduce flexibility versus conservative peers prioritizing FCF.

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