TERUMO CORPORATION 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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