TERUMO (4543) FY2027 Q1 Earnings Report

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Executive Summary

Terumo’s Q1 of FY ending March 2027 recorded higher revenue and higher profit, driven by improved profitability in its core businesses, in addition to the one-time benefit of settlement proceeds received. Revenue was ¥3,118.1B (+19.9% YoY), Operating Income was ¥894.8B (+60.1%), and Net Income was ¥704.3B (+68.3%). The Operating Income margin improved significantly to 28.7% from 21.5% in the previous year; however, settlement proceeds received of ¥201.1B included in other income were a contributing factor. Excluding this item, adjusted Operating Income (total segment income) was ¥796.1B, representing a margin of approximately 25.5%, indicating that core earnings power itself also improved.

Factors Affecting Results

【Revenue】Revenue was ¥3,118.1B, an increase of +19.9% YoY. The Cardiovascular Company was the largest growth driver, with revenue of ¥1,881.4B (+19.2%), accounting for 60.4% of total revenue, followed by Blood and Cell Technologies at ¥607.8B (+17.7%) and Medical Care Solutions at ¥565.9B (+12.3%). The Organ Technologies Business, a new segment for the current period added through M&A, recorded revenue of ¥62.2B.

【Profit and Loss】Operating Income was ¥894.8B (+60.1%), while the gross margin improved to 57.3% (+1.4pt YoY) and the SG&A expense ratio improved to 35.2% (▲0.2pt YoY), indicating an improved earnings structure. However, Operating Income includes other income of ¥211.98B, of which settlement proceeds received of ¥201.1B contributed as a one-time factor. Net Income was ¥704.3B (+68.3%), while the effective tax rate for income taxes and other taxes declined to 22.0% from 24.3% in the previous year, supporting Net Income growth. The company achieved higher revenue and higher profit, and underlying profit growth excluding one-time gains can also be confirmed.

Segment Analysis

The Cardiovascular Company reported revenue of ¥1,881.4B (+19.2%), Operating Income of ¥599.7B (+31.3%), and a profit margin of 31.9%, the highest level among all segments, making it the primary contributor to the increase in consolidated Operating Income. Blood and Cell Technologies reported revenue of ¥607.8B (+17.7%) and Operating Income of ¥111.3B (+58.3%), exceeding its revenue growth rate with a higher profit growth rate; its profit margin also expanded to 18.3%. Medical Care Solutions reported revenue of ¥565.9B (+12.3%) and Operating Income of ¥70.8B (+6.2%), with profit growth lagging revenue growth and its profit margin remaining relatively low compared with other segments at 12.5%. The Organ Technologies Business was added as a new segment in the current period through M&A and recorded revenue of ¥62.2B and Operating Income of ¥9.4B, representing a profit margin of 15.1%.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 28.7% (+7.2pt from 21.5% in the previous year), while the Net Income margin improved to 22.6% (+6.5pt from 16.1% in the previous year). Both the gross margin of 57.3% and the SG&A expense ratio of 35.2% also trended favorably.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥744.8B, slightly exceeding Net Income of ¥704.3B. However, increases in trade receivables and inventories and a decrease in accounts payable weighed on cash flow through working capital, with the difference from OCF subtotal before changes in working capital of ¥979.0B reaching approximately ¥204B.【Investment Efficiency】ROE was 4.2% and the Equity Ratio was 70.0%, indicating a strong capital base; however, low total asset turnover limited capital efficiency.【Financial Soundness】Bonds and borrowings consisted of short-term debt of ¥1,799.4B and long-term debt of ¥2,095.2B, while cash and cash equivalents of ¥3,146.3B provided ample coverage of short-term debt. The maturity profile was smoothed through the reclassification of a portion of short-term borrowings to long-term debt.

Cash Flow Analysis

Operating Cash Flow (OCF) increased +128.2% YoY to ¥744.8B, slightly exceeding Net Income of ¥704.3B. However, increases in trade receivables of +¥65.9B and inventories of +¥31.8B, along with a decrease in trade payables of ▲¥37.3B, represented adverse working capital factors that reduced the reported amount. Even including income taxes and other taxes paid of ¥240.4B, the decline from the subtotal of ¥979.0B was notable. Investing Cash Flow was ▲¥282.7B, including capital expenditures of ¥126.1B, investment in intangible assets of ¥62.1B, and expenditures for business acquisitions of ¥62.9B. Financing Cash Flow was ▲¥161.9B. Although the company raised ¥980.0B through long-term borrowings and ¥792.6B through bond issuance, it repaid ¥1,600.0B of long-term borrowings and paid dividends of ¥219.0B, suggesting that it proceeded to extend the maturity of its debt structure. As a result, Free Cash Flow was ¥462.1B, demonstrating cash generation sufficient to more than cover dividends and capital expenditures.

Earnings Quality

Current-period Operating Income of ¥894.8B includes the nonrecurring, one-time factor of settlement proceeds received of ¥201.1B within other income of ¥211.98B. Excluding this item, adjusted Operating Income (total segment income) was ¥796.1B, representing a margin of approximately 25.5%, indicating that core earnings power continued to improve. Meanwhile, the expensing of the inventory step-up of ▲¥25.6B associated with the acquisition of Organox temporarily reduced profit, meaning that one-time factors contributed a net positive amount. Financial income of ¥23.8B increased from ¥8.7B in the previous year, while the equity-method investment loss improved to ▲¥0.6B from ▲¥2.2B in the previous year. The fact that OCF of ¥744.8B slightly exceeded Net Income of ¥704.3B indicates that earnings were generally being converted into cash. However, taking the increase in working capital into account, the quality of reported earnings should be monitored in subsequent periods as the reversal of one-time gains fades.

Earnings Forecast and Guidance

Progress toward the Full-Year forecast was 25.2% for Revenue (¥3,118.1B/¥12,390.0B), 34.7% for Operating Income (¥894.8B/¥2,575.0B), and 36.5% for Net Income (¥704.3B/¥1,931.0B), with all three exceeding the simple benchmark progress rate of 25%. However, progress for Operating Income and Net Income includes one-time factors such as settlement proceeds received, and progress excluding these items is expected to be more gradual. The earnings forecast was revised during the current quarter, potentially reflecting an upward adjustment to the Full-Year outlook, while the dividend forecast was not revised.

Shareholder Returns

Dividend payments during Q1 amounted to ¥219.0B, representing a Payout Ratio of approximately 31.1% against quarterly Net Income of ¥704.3B. The Full-Year Payout Ratio calculated from the Full-Year forecast EPS of ¥130.91 and DPS of ¥36.00 is approximately 27.5%. Share repurchases amounted to ¥0.0B, meaning that shareholder returns during the current period consisted solely of dividends. Free Cash Flow of ¥462.1B was equivalent to 2.1 times dividend payments of ¥219.0B, indicating that sufficient funds were secured for shareholder returns.

Risk Factors

1. Segment concentration risk: The Cardiovascular Company accounts for 60.4% of revenue and approximately 75% of total adjusted Operating Income, indicating a high degree of dependence on a single segment. Demand fluctuations and pricing revisions in this segment could significantly affect consolidated results.

2. High levels of goodwill and intangible assets: Goodwill and intangible assets totaled ¥8,091.5B, accounting for approximately 34.1% of total assets of ¥23,740.9B. Asset recognition associated with M&A, including the acquisition of Organonox, continues, and future impairment risk should be monitored.

3. Working capital efficiency: Trade receivables of ¥223.9B and inventories of ¥341.1B increased, while trade payables declined to ¥79.8B, weighing on OCF. Trends in the collection cycle for inventories and accounts receivable will influence future cash generation.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s Operating Income margin and Net Income margin both substantially exceed the industry median, placing the company in a high position within the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeds the industry median and the upper quartile.

※Source: Compiled by the company

Key Points from the Earnings Results

1. The improvement in the Operating Income margin to 28.7% from 21.5% in the previous year includes the one-time factor of settlement proceeds received. However, the margin also expanded to approximately 25.5% based on adjusted Operating Income, confirming an improvement in core earnings power driven by pricing revisions and an improved product mix.

2. Full-Year progress (34.7% for Operating Income and 36.5% for Net Income) exceeds the standard 25% benchmark. However, progress excluding one-time factors is more gradual, and the sustainability of core profit from the next period onward will be a key focus in assessing business performance trends.

3. Increases in trade receivables and inventories and a decrease in trade payables weighed on OCF through working capital. The trend in the gap between profit growth and cash generation will be a key monitoring point.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson type; explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,226–¥1,300 at cost of equity ±1%, and ¥1,259–¥1,267 at ω±0.1.

Notes:

• Because progress in Net Income toward the Full-Year forecast (36%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a timing difference relative to the Full-Year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional adviser where necessary.

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AI Financial Analysis

Executive Summary

Terumo delivered a strong FY2027 Q1 result, with broad underlying segment growth supplemented by a material non-recurring settlement gain. Revenue increased 19.9% year on year to ¥311.8bn. Reported operating income rose 60.1% to ¥89.5bn and net income increased 68.3% to ¥70.4bn. The reported operating margin expanded 720bp year on year to 28.7% from 21.5%. Gross margin improved approximately 130bp to 57.3%, indicating favorable product mix, pricing, manufacturing efficiency, or a combination of these factors. The SG&A-to-revenue ratio edged down about 20bp to 35.2%, despite SG&A increasing 19.3%, broadly in line with revenue growth. Reported operating profit included net temporary gains of ¥17.1bn, principally a ¥20.1bn settlement receipt, partly offset by ¥2.6bn of inventory step-up expense associated with the OrganOx acquisition. Excluding acquired-intangible amortization and temporary items, adjusted operating income was ¥79.6bn, up 34.7% from ¥59.1bn, and the adjusted operating margin improved 280bp to 25.5%. Thus, the underlying earnings improvement remains substantial, but reported year-on-year profit growth materially overstates the recurring run-rate improvement. Operating cash flow of ¥74.5bn exceeded net income of ¥70.4bn, producing an OCF/net-income ratio of 1.06x. Free cash flow was positive at ¥46.2bn after ¥12.6bn of tangible capex. Working-capital absorption nevertheless persisted, led by receivables, inventories and payables, which together reduced operating cash flow by ¥13.5bn. The balance sheet remains conservatively capitalized, with a 70.0% equity ratio, a reported debt-to-equity ratio of 0.43x, and a current ratio of 2.19x. Full-year forecast progress is ahead of a standard first-quarter pace for profit, although this partly reflects the settlement gain. Management revised its forecast, and investors should focus on whether the remaining quarters validate the higher adjusted-profit trajectory without further one-off support. The annual forecast dividend of ¥36 per share implies a prospective dividend payout ratio of 27.5% based on forecast EPS of ¥130.91, leaving substantial financial flexibility.

Profitability Analysis

Reported annualized ROE was 16.9%, decomposed into a 22.6% net profit margin, 0.525x asset turnover, and 1.43x financial leverage. The main driver of the high annualized ROE is profitability rather than leverage, consistent with the 70.0% equity ratio and modest reported debt-to-equity ratio. The reported net margin rose to 22.6%, but its quality is affected by the ¥17.1bn net temporary gain recorded within operating profit. The reported operating margin of 28.7% was excellent and expanded 720bp year on year. More conservatively, adjusted operating profit was ¥79.6bn, up 34.7% year on year, and its margin was 25.5%, up 280bp; this demonstrates meaningful operating leverage even after removing temporary effects. Gross profit increased 22.7% to ¥178.5bn, faster than revenue growth of 19.9%, lifting gross margin to 57.3%. SG&A increased 19.3% to ¥109.7bn, marginally slower than revenue, so overhead did not dilute the gross-margin improvement. The cardiovascular company is the core business by adjusted operating-income contribution, generating ¥60.0bn, or roughly 76% of aggregate segment adjusted operating income, on revenue of ¥188.1bn. Its adjusted operating margin was 31.9%, well above the group segment average. Medical Care Solutions generated revenue of ¥56.6bn, up 12.3%, and adjusted operating income of ¥7.1bn, up 6.2%, with a 12.5% margin. Blood and Cell Technologies generated revenue of ¥60.8bn, up 17.7%, and adjusted operating income of ¥11.1bn, up 58.3%, with an 18.3% margin. Organ Technologies contributed ¥6.2bn of revenue and ¥0.9bn of adjusted operating income, a 15.1% margin, following the OrganOx acquisition. Segment profit expansion in cardiovascular and Blood and Cell Technologies supports the underlying margin improvement, while the settlement gain should not be extrapolated as recurring operating leverage.

Growth Assessment

Revenue growth of 19.9% was strong, with the acquired Organ Technologies business contributing ¥6.2bn of quarterly sales while the established three operating segments also expanded. Cardiovascular revenue grew 19.2% year on year to ¥188.1bn, confirming that the largest profit pool remains the principal organic growth engine. Blood and Cell Technologies grew revenue 17.7% and adjusted operating income 58.3%, making it the strongest source of incremental segment profit. Medical Care Solutions revenue grew 12.3%, but adjusted operating-income growth of 6.2% lagged sales growth, indicating more limited margin leverage in that business. The adjusted group operating-profit growth rate of 34.7% exceeded revenue growth by 14.8 percentage points, indicating a favorable mix and/or improved operating efficiency. The full-year revenue forecast is ¥1,239.0bn, and Q1 represents 25.2% progress, essentially aligned with the standard 25% first-quarter benchmark. Q1 reported operating income represents 34.7% of the ¥257.5bn full-year forecast, 9.7 percentage points above the standard pace. Q1 net income represents 36.5% of the ¥193.1bn forecast, 11.5 percentage points above the standard pace and therefore exceeds the 10-percentage-point threshold. The above-standard profit progress is substantially explained by the ¥20.1bn settlement receipt, partially offset by acquisition-related inventory step-up expense. Accordingly, forecast delivery depends on sustained underlying growth, especially in cardiovascular and Blood and Cell Technologies, rather than on the Q1 reported margin. The full-year forecast implies revenue growth of approximately 0.8% from the Q1 annualized revenue pace, while profit guidance should be viewed in the context of expected normalization of temporary income.

Financial Health

Financial health is strong. Current assets of ¥906.6bn exceeded current liabilities of ¥413.3bn, producing a current ratio of 2.19x, comfortably above the 1.5x healthy benchmark. Net working capital was approximately ¥493.3bn. Cash and cash equivalents were ¥314.6bn, up ¥34.1bn from the fiscal year-end balance. Total liabilities declined ¥15.7bn from fiscal year-end to ¥712.1bn, while total equity rose ¥77.5bn to ¥1,662.0bn. The equity ratio increased from 68.5% to 70.0%, providing a substantial loss-absorption buffer. The reported debt-to-equity ratio of 0.43x is conservative and well below the 2.0x warning threshold. There is no apparent near-term maturity mismatch: current assets exceed current liabilities by more than two times, while cash alone exceeds the ¥179.9bn of current bonds and borrowings. Debt maturities were actively refinanced during the quarter, with ¥160.0bn of long-term borrowings repaid, ¥98.8bn of new long-term borrowing raised, ¥79.3bn of bonds issued, and ¥10.0bn of bonds redeemed. This shifted borrowings from current to non-current classification, as current bonds and borrowings fell ¥99.9bn while non-current bonds and borrowings increased ¥109.6bn from fiscal year-end. Property, plant and equipment represented 21.4% of total assets, while goodwill and intangible assets totaled ¥809.1bn, equivalent to 34.1% of assets. This sizable acquired-asset and intangible base makes future returns and capital preservation sensitive to the performance of acquired businesses, including OrganOx.

Notable B/S Changes

Current bonds and borrowings: -¥99.9bn from fiscal year-end to ¥179.9bn, while non-current bonds and borrowings increased ¥109.6bn to ¥209.5bn — refinancing extended the debt maturity profile. Total equity: +¥77.5bn (+4.9%) to ¥1,662.0bn — Q1 profit of ¥70.4bn and OCI of ¥29.2bn more than offset ¥22.1bn of dividends. Other components of equity: +¥29.1bn (+7.4%) to ¥421.2bn — principally favorable foreign-currency translation differences of ¥27.4bn, which also illustrates sensitivity of book equity to exchange rates. Cash and cash equivalents: +¥34.1bn (+12.2%) to ¥314.6bn — positive operating cash flow and debt refinancing supported liquidity. Goodwill and intangible assets: +¥5.7bn (+0.7%) to ¥809.1bn — the asset base remains substantial following the OrganOx acquisition, requiring continued monitoring of acquisition returns and impairment exposure.

Cash Flow Quality

Cash conversion quality was sound in Q1, with operating cash flow of ¥74.5bn exceeding net income of ¥70.4bn and an OCF/net-income ratio of 1.06x. The accruals ratio of negative 0.2% also indicates that reported earnings were well supported by cash generation. Operating cash flow increased ¥41.8bn year on year, substantially outpacing the ¥28.6bn increase in net income. Free cash flow was ¥46.2bn after tangible capex of ¥12.6bn, providing positive internal funding capacity. Investment cash outflow totaled ¥28.3bn and included ¥6.2bn of intangible-asset purchases and ¥6.3bn of business-acquisition spending. Acquisition spending was modest relative to quarterly revenue at approximately 2.0%, but integration execution remains relevant given the recently added Organ Technologies segment. Working capital was a cash outflow: receivables increased by ¥6.6bn, inventories increased by ¥3.2bn, payables declined by ¥3.7bn, and other working-capital items consumed ¥4.3bn. The high receivable-days alert is material: annualized DSO was 66 days, above the 60-day warning level, indicating slower collection than the benchmark. The high inventory-days alert is also material: annualized DIO was 234 days, far above both the 90-day warning level and the 60-day manufacturing efficiency benchmark. For a medical-device manufacturer, some inventory buffer is operationally appropriate to support product availability, regulatory control, and global supply continuity; however, 234 days leaves significant capital tied up in stock and raises the importance of monitoring demand forecasting, product expiry, and obsolescence risk. The long cash-conversion-cycle alert is similarly material: the annualized cash conversion cycle was 244 days, well above the 120-day warning threshold. The elevated CCC is driven primarily by inventory duration and, secondarily, receivable collection, although estimated annualized payable days of about 55 days remain within the 30-60 day benchmark range. These working-capital metrics do not currently indicate earnings manipulation because OCF exceeded net income, but they reduce cash efficiency and could pressure future cash flow if inventory growth outpaces sales.

Dividend Sustainability

Dividend sustainability appears strong based on the full-year forecast. The forecast dividend per share is ¥36.0 and forecast EPS is ¥130.91, implying a dividend-only payout ratio of 27.5%. This is well below the 60% sustainability benchmark. Q1 dividends paid were ¥21.9bn, while free cash flow was ¥46.2bn, providing approximately 2.1x quarterly FCF coverage. Operating cash flow alone covered dividends by approximately 3.4x. No share repurchases were recorded, so the dividend payout ratio is the appropriate shareholder-return measure. Retained earnings increased to ¥1,164.8bn, and the equity ratio rose to 70.0%, supporting capacity for ordinary dividends and investment. The principal constraint on dividend expansion is not near-term liquidity but the need to preserve flexibility for acquisition integration, intangible investment, manufacturing capacity, and elevated working-capital requirements. The forecast payout leaves substantial capacity to absorb normal volatility in cash flow.

Risk Assessment

Business risks include High priority — Working-capital efficiency: annualized inventory days of 234 and a 244-day cash conversion cycle tie up significant capital. In medical devices, inventory is needed for supply assurance, but prolonged inventory holdings elevate expiry, obsolescence, demand-forecasting, and product-mix risk., High priority — Settlement normalization: Q1 operating profit included a ¥20.1bn settlement receipt and ¥17.1bn net temporary gain. Reported profit growth and the 28.7% operating margin are therefore not fully recurring., Medium priority — OrganOx integration: Organ Technologies added ¥6.2bn of revenue and ¥0.9bn of adjusted operating income. Realizing expected synergies while managing acquired inventory step-up, integration, and commercial execution is important., Medium priority — Regulatory and product quality: the group incurred European MDR preparation costs, and medical-device manufacturers face ongoing approval, post-market surveillance, reimbursement, product-liability, and recall risks., Medium priority — Foreign-exchange exposure: overseas operations contributed ¥27.4bn of positive translation differences in OCI. Currency movements can affect reported equity, overseas earnings translation, and competitiveness..

Financial risks include Low priority — Refinancing and interest costs: the company refinanced a substantial amount of borrowings during Q1. Liquidity is strong, but finance costs rose to ¥1.5bn from ¥1.3bn and borrowing costs should be monitored in a higher-rate environment., Medium priority — Intangible asset concentration: goodwill and intangible assets totaled ¥809.1bn, or 34.1% of total assets. This creates exposure to impairment should acquired businesses underperform expectations., Low priority — Receivables collection: annualized DSO of 66 days exceeds the 60-day alert threshold. The cash-flow impact is currently manageable, but delayed collection can increase funding needs if growth remains rapid..

Key concerns include Underlying adjusted operating profit grew strongly, but investors should separate the 34.7% adjusted growth rate from the 60.1% reported operating-profit increase., The full-year profit forecast is front-loaded on a reported basis: operating-income progress is 34.7% and net-income progress is 36.5% after only one quarter., Inventory discipline and receivable collection are the principal operational cash-flow metrics to monitor., The balance sheet is robust, mitigating near-term leverage and liquidity risks despite active debt refinancing..

Investment Implications

Key takeaways include Q1 demonstrated strong underlying revenue and adjusted-profit momentum, led by the cardiovascular and Blood and Cell Technologies businesses., Reported profitability was exceptionally high, but the settlement-related temporary gain materially enhanced Q1 operating and net income., Cash earnings quality was favorable, with OCF/net income of 1.06x and negative accruals of 0.2%., Capital structure and liquidity are conservative, with a 70.0% equity ratio, 0.43x reported D/E, and 2.19x current ratio., Working-capital efficiency is the major financial-operating watchpoint, particularly the 234-day inventory level and 244-day cash conversion cycle..

Metrics to watch include Adjusted operating margin and growth excluding temporary gains, Cardiovascular and Blood and Cell Technologies revenue and adjusted operating-income growth, Organ Technologies revenue, margin progression, and integration-related costs, Annualized DSO, DIO, payable days, and cash conversion cycle, Free cash flow after capex, intangible investment, and acquisition spending, Goodwill and intangible-asset carrying values relative to acquired-business performance, Full-year forecast execution after the front-loaded Q1 settlement gain.

Regarding relative positioning, Terumo combines excellent reported annualized ROE of 16.9%, high operating profitability, strong cash conversion, and a conservative capital base. Relative positioning is strengthened by the high-margin cardiovascular franchise and improving Blood and Cell Technologies profitability, while the key offsets are elevated inventory intensity, a long cash conversion cycle, acquired-intangible concentration, and the non-recurring component of Q1 earnings.