DAIICHI SANKYO (4568) FY2027 Q1 Earnings Report

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Executive Summary

The key feature of Q1 FY2026 was the simultaneous occurrence of substantial revenue growth driven by the core Oncology business and a decline in operating income due to business restructuring costs and increased R&D investment. Revenue rose strongly to ¥5,747.4B (+21.1% YoY), while operating income declined to ¥851.0B (-12.0% YoY) and net income attributable to owners of the parent, which equals consolidated net income, declined to ¥686.4B (-19.7% YoY). The main drivers of revenue growth were the expansion of Enhertu and Datroway and the positive impact of the weaker yen. The primary causes of the decline in earnings were the recognition of restructuring costs in the EU Specialty business and increases in R&D and SG&A expenses. Progress against the full-year company forecasts of ¥2 trillion 3,400B in revenue and ¥3,200B in operating income was 24.6% for revenue, 26.6% for operating income, and 27.0% for net income, exceeding the standard quarterly progress rate (25%).

Factors Affecting Performance

【Revenue】The +21.1% revenue growth was driven by the expansion of Enhertu (+¥523B YoY) and Datroway (+¥134B YoY) in the core Oncology business. In addition, the actual exchange rates in Q1 (USD/JPY 159.49 and EUR/JPY 185.38) represented yen depreciation of +¥14.89 and +¥21.57, respectively, compared with the previous year, increasing the yen-denominated value of overseas sales. The Japan Business declined slightly YoY, primarily due to lower revenue from Lixiana (-¥46B), but growth in the Oncology, EU, and ASCA businesses more than offset the decline.

【Profit and Loss】Operating income declined 12.0%. The gross margin fell 2.2pt to 78.4% from 80.5% in the previous year, while SG&A expenses increased to ¥2,499.6B (+38.6% YoY), outpacing revenue growth and causing operating leverage to reverse. R&D expenses rose to ¥1,154.5B (+9.0% YoY), reflecting continued investment in the DXd ADC portfolio, although they declined slightly as a percentage of revenue to 20.1% from 22.3%. The principal causes of the decline were the ¥240B restructuring cost for the EU Specialty Business Unit, a one-time factor, and the recognition of an inventory valuation loss. These were partially offset by the ¥69B reversal of a provision related to compensation for the cancellation of investment in the Odawara Plant, also a one-time factor and non-core income. Profit before tax was ¥913.4B (-13.4% YoY). After deducting income taxes of ¥227.0B, representing an effective tax rate of 24.9%, net income was ¥686.4B. The difference between profit before tax and net income was within the normal tax burden range, with no unusual divergence observed. In conclusion, the Company recorded higher revenue but lower earnings in the quarter.

Segment Analysis

The Company operates as a single Pharmaceutical segment and has no formal reportable segment classification. However, based on business-unit results presented in the earnings presentation, the Oncology Business generated revenue of ¥1,974B (+¥662B YoY, +50.4%), representing the largest composition ratio at approximately 34% of total revenue and serving as the core business. The Oncology Business was the primary driver of revenue growth this period due to the expansion of Enhertu and Datroway. Meanwhile, the EU Specialty Business generated revenue of ¥747B (+¥109B YoY) and recorded growth, but recognized ¥240B in restructuring costs, which reduced consolidated operating income. The Japan Business generated ¥1,200B (-¥49B YoY), declining mainly due to lower revenue from Lixiana. American Regent also fell below the previous year at ¥422B (-¥71B YoY), primarily due to lower revenue from Venofer and other products. Oncology, which drove revenue growth, and EU Specialty, which reduced earnings, played contrasting roles as the respective drivers of changes in revenue and profit.

Key Financial Metrics

Profitability: ROE was 4.0% (5.1% in the previous year), and the operating margin was 14.8% (20.4% in the previous year); both declined YoY.
Cash flow quality: Operating CF/net income was 0.30x (negative in the previous year), below 1.0x, while FCF was ¥487.5B.
Investment efficiency: Capital expenditure/depreciation was 1.73x, indicating a growth investment phase above 1.0x.
Financial soundness: The equity ratio was 41.4% (42.1% in the previous year), and the current ratio was 291.8%.

Cash Flow Analysis

Operating CF was ¥203.3B, and its ratio to net income of ¥686.4B was only 0.30x, indicating weak cash backing for earnings. Investing CF was positive at ¥284.2B. Although capital expenditures of -¥372.4B were recorded, cash inflows from the withdrawal of time deposits of ¥345.7B and proceeds from the sale of investments of ¥541.2B more than offset the outflows. Financing CF was ¥1,224.7B, primarily because funding from the issuance of ¥2,000B in bonds exceeded dividend payments of -¥712.2B and share buybacks of -¥4.8B. FCF was positive at ¥487.5B (operating CF + investing CF). Cash generation requires monitoring, as an increase in inventories (+¥406.1B), a decrease in trade payables (-¥337.3B), and an increase in income tax payments (-¥925.3B) weighed on operating CF.

Earnings Quality

As the Company applies IFRS, ordinary income is not used. Net income of ¥686.4B was calculated by deducting income taxes of ¥227.0B, representing an effective tax rate of 24.9%, from profit before tax of ¥913.4B. The difference between the two was within the normal tax burden range. Financial income was ¥97.4B, only 1.7% of revenue, indicating that the scale of non-operating income was limited. At the same time, the ¥240B EU Specialty business restructuring cost and the ¥69B reversal of the provision related to the Odawara Plant were offsetting one-time items included in operating income. Reported operating income of ¥851.0B was therefore affected by these one-time factors. Accruals arose because operating CF of ¥203.3B was substantially below net income of ¥686.4B, against a backdrop of increases in inventories, trade receivables, and tax payments. Earnings quality is consequently at a level requiring monitoring.

Earnings Forecasts and Guidance

Progress against the full-year forecasts was 24.6% for revenue (¥5,747.4B/¥2 trillion 3,400B), 26.6% for operating income (¥851.0B/¥3,200B), and 27.0% for net income (¥686.4B/¥2,540B), all exceeding the standard quarterly progress rate (25%). The Company revised its earnings forecasts during the quarter, raising revenue by +¥600B and operating income by +¥50B. The main factors were a revision to the foreign exchange assumptions from Q2 onward (USD/JPY 155 and EUR/JPY 180), strong U.S. sales of Enhertu, and an increase in non-core income from the reversal of the Odawara Plant-related provision. There was no revision to the dividend forecast, and the annual dividend remains ¥100.

Shareholder Returns

Based on the full-year company forecasts, forecast DPS of ¥100 against forecast EPS of ¥137.94 implies a payout ratio of 72.5%. Dividend payments reported in the cash flow statement for the quarter were ¥712.25B, up from ¥561.03B in the previous year. Share buybacks were limited to ¥4.8B, a significant decrease from ¥585.36B in the previous year. The payout ratio based solely on dividends is 72.5% as noted above, while the total return ratio including share buybacks was relatively low based on actual results for the quarter.

Catalysts

【Short Term】Key areas of focus include the divergence between actual exchange rates and the foreign exchange assumptions from Q2 onward (USD/JPY 155 and EUR/JPY 180), progress toward additional indications for Enhertu and Datroway, and the scheduled initiation of the FIH trial for the novel Treg cell-targeting ADC “DS1025” in 1H FY2026.

【Long Term】Medium- to long-term events of interest include progress under the R&D policy of positioning DXd ADCs as the 1st BGT and identifying multiple Next BGTs by FY2030, as well as the development of new modalities in the field of immuno-oncology.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (pharma)

Profitability and Returns

The operating margin was slightly below the industry median, while the net profit margin was substantially above the industry median, highlighting the contrast between front-loaded investment at the operating level and relatively strong efficiency after taxes.

Growth and Capital Efficiency

The revenue growth rate was more than twice the industry median, representing a high level of growth within the industry.

※Source: Compiled by the Company

Risk Factors

1. Declining cash conversion: Operating CF/net income was only 0.30x, while inventories increased to ¥7,330.5B (+5.9% from the end of the previous fiscal year). An inventory valuation loss was also recognized, indicating that inventory and working capital management are affecting cash generation.

2. Foreign exchange risk: The actual exchange rates in Q1 (USD/JPY 159.49 and EUR/JPY 185.38) were weaker yen levels than the full-year assumptions (USD/JPY 155 and EUR/JPY 180). If a divergence from these assumptions emerges toward the second half of the fiscal year, an impact on performance is anticipated.

3. One-time costs associated with business restructuring: The ¥240B restructuring cost for the EU Specialty Business Unit reduced operating income in the quarter. Depending on the progress of future business structural reforms, additional one-time costs may arise.

Key Earnings Takeaways

1. Revenue growth of +21.1% substantially exceeded the industry median of 9.8%, while the operating margin of 14.8% was below the industry median of 17.5%. The earnings data indicate a growth investment phase in which R&D investment and business restructuring costs are being incurred ahead of benefits.

2. The low cash conversion rate of 0.30x for operating CF/net income resulted from movements in inventories, trade receivables, and tax payments. The ability to convert earnings into cash will be a key monitoring point in future quarters.

3. The full-year forecast has already been revised upward, and progress rates for revenue, operating income, and net income all exceed the standard progress rate (25%). Based on the disclosed information, progress toward achieving the full-year plan appears reasonable.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It does not represent a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,075–¥1,136 for a ±1% change in the cost of equity, and ¥1,101–¥1,111 for a change of ±0.1 in ω.

Note:

• Net assets as of the quarter-end were used (there is a time difference relative to the full-year forecast).

(Model: Residual income model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated through AI integration and analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 discretion and responsibility, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

Daiichi Sankyo’s FY2027 Q1 result showed strong top-line expansion but a material decline in operating and net profit as commercial and development spending rose faster than sales. Revenue increased 21.1% year on year to ¥574.7bn. Gross profit rose ¥68.2bn to ¥450.4bn, supported by the enlarged revenue base. However, selling, general and administrative expense increased ¥69.6bn, or 38.6% year on year, to ¥250.0bn. R&D expense increased ¥9.5bn, or 9.0%, to ¥115.5bn, representing a still-high 20.1% of revenue. Operating income declined 12.0% to ¥85.1bn despite revenue growth. The operating margin compressed 560bp year on year to 14.8% from 20.4%. Gross margin also declined 210bp to 78.4%, indicating a less favorable product and/or geographic mix at the gross-profit level. Net income fell 19.7% to ¥68.6bn and EPS declined to ¥37.72 from ¥46.03. Finance income of ¥9.7bn remained meaningful, but finance cost more than doubled to ¥3.2bn and equity-method income moved to a ¥0.3bn loss. The effective tax rate increased to 24.9% from 18.9% in the prior-year quarter, adding to the gap between operating-profit and net-income performance. Annualized ROE remained strong at 16.1%, but this was supported by 2.42x financial leverage rather than a high net margin. Cash conversion was weak in the quarter, with operating cash flow of ¥20.3bn equivalent to only 0.30x net income. Inventory rose by ¥40.6bn in cash-flow terms, while payables declined by ¥33.7bn, constraining operating cash generation despite a ¥66.5bn collection of receivables. The Q1 revenue, operating-profit, and net-income progress rates versus full-year guidance were 24.6%, 26.6%, and 27.3%, respectively, broadly near the 25% seasonal benchmark. Full-year guidance nevertheless requires a pronounced recovery in profitability during the remaining quarters, as management forecasts operating income growth of 24.0% for the year despite Q1’s 12.0% decline. The balance sheet remains liquid, but the increase in long-term borrowings and working-capital intensity elevate the importance of monitoring cash conversion and margin recovery.

Profitability Analysis

Annualized DuPont ROE is 16.1%, decomposed into an 11.9% net profit margin, 0.559x asset turnover, and 2.42x financial leverage. The principal change in the earnings profile is margin compression: operating margin declined 560bp to 14.8%, while net margin declined to 11.9% from 18.0% in the prior-year quarter. Gross margin declined 210bp to 78.4%, but the larger pressure came below gross profit because SG&A increased 38.6%, substantially faster than 21.1% revenue growth. SG&A rose to 43.5% of revenue from 38.0%, a 550bp increase, indicating negative operating leverage in the quarter. R&D increased 9.0% to ¥115.5bn, but its ratio to revenue declined 220bp to 20.1%; this remains consistent with an innovator-pharma investment model and is above the 15-20% industry reference range. The operating-profit bridge is clear: ¥68.2bn gross-profit growth was more than absorbed by ¥69.6bn higher SG&A and ¥9.5bn higher R&D, producing a ¥11.6bn decline in operating income. The tax burden factor was 0.751, which is within a normal range, while the interest burden of 1.073 reflects net finance income rather than debt-service stress. The 14.8% EBIT margin is slightly below the 15% excellent-profitability threshold but remains strong for a global pharmaceutical company in an investment-heavy period. Annualized ROA, calculated using annualized Q1 net income and average assets, is approximately 6.8%, indicating that the reported annualized ROE is materially enhanced by leverage. Sustained improvement in ROE therefore depends primarily on restoring operating margins and improving asset productivity rather than further increasing balance-sheet leverage.

Growth Assessment

Revenue growth of 21.1% is strong and Q1 revenue reached 24.6% of the ¥2,340.0bn full-year forecast, close to the standard 25% Q1 progress rate. Revenue growth was sufficient to lift gross profit by 17.8%, although the growth rate lagged revenue because gross margin fell to 78.4%. The company operates as a single pharmaceutical-business segment, so group growth depends on the performance and lifecycle management of its consolidated drug portfolio. The R&D intensity of 20.1% supports continued pipeline investment and is appropriate for an innovator pharma company, although this investment must ultimately translate into approvals, launches, and durable post-launch sales. Operating income reached 26.6% of the ¥320.0bn full-year forecast, modestly ahead of the 25% seasonal benchmark. Net income reached 27.3% of the ¥251.0bn owner-attributable full-year forecast, also modestly ahead of the benchmark. However, the quarterly year-on-year trend contrasts with the full-year outlook: Q1 operating income fell 12.0%, while full-year guidance assumes 24.0% operating-income growth. This implies a substantial second-to-fourth-quarter margin recovery, likely requiring SG&A growth to normalize relative to revenue and/or a more favorable sales mix. Full-year net income is forecast to decline 10.3%, which is less severe than the 19.7% Q1 decline, also implying later-period improvement. The forecast was revised during the quarter, increasing the importance of tracking whether subsequent quarterly revenue and operating income continue to meet or exceed the implied run rate. Pharmaceutical revenue durability remains exposed to clinical-development outcomes, regulatory approvals, reimbursement and pricing reforms, competitive launches, and loss of exclusivity dynamics.

Financial Health

Liquidity is strong. The current ratio is 2.92x, calculated from ¥2,234.4bn of current assets and ¥765.7bn of current liabilities, and the quick ratio is approximately 1.96x using cash, receivables, and current financial assets. Accordingly, there is no near-term maturity mismatch: current liquid assets substantially exceed current liabilities. Cash and deposits increased 37.0% year on year to ¥669.8bn, equivalent to 16.3% of total assets. Trade receivables accounted for 16.5% of assets and inventories for 17.8%, demonstrating that working capital is a substantial component of the asset base. The reported debt-to-equity ratio is 1.42x, below the 2.0x aggressive-leverage warning threshold but higher than a conservative 1.0x benchmark. Interest-bearing bonds and borrowings totaled approximately ¥500.5bn, predominantly non-current, compared with ¥0.5bn of current bonds and borrowings; this tenor profile limits refinancing pressure in the next twelve months. Non-current borrowings increased by approximately ¥199.9bn from the prior-year quarter to ¥500.0bn, consistent with the ¥200.0bn financing inflow during Q1. Annualized interest coverage is very strong at roughly 105x based on annualized Q1 EBIT and finance costs, although finance costs increased sharply year on year. Equity increased to ¥1,702.7bn and the equity ratio was 41.4%, down modestly from 42.1% in the prior-year quarter. Goodwill was only 5.8% of equity and 2.4% of assets, while intangible assets were 5.9% of assets, indicating limited balance-sheet dependence on acquisition goodwill. Deferred tax assets totaled ¥449.7bn, or 10.9% of assets, making their recoverability a relevant long-term earnings and taxable-profit consideration. Contract liabilities totaled ¥876.0bn across current and non-current balances, providing a meaningful source of funding but also creating an obligation to deliver contracted goods or services over time.

Notable B/S Changes

Cash and deposits: +¥180.8bn year on year (+37.0%) to ¥669.8bn — liquidity increased materially, supported by financing inflows and investment redemptions. Treasury stock: +¥103.7bn year on year (+41.8%, becoming less negative) to -¥144.3bn — reflects treasury-share disposal/cancellation-related equity movements and increases reported equity per share. Non-current bonds and borrowings: +¥199.9bn year on year (+66.6%) to ¥500.0bn — debt funding increased materially; the long maturity profile limits immediate refinancing risk, but interest cost and deployment of proceeds should be monitored. Inventories: +¥40.7bn year on year (+5.9%) to ¥733.1bn — the balance remains large at 17.8% of assets and is consistent with the elevated 538-day inventory cycle. Property, plant and equipment: +¥29.6bn year on year (+5.0%) to ¥626.1bn — ongoing manufacturing and infrastructure investment aligns with ¥37.2bn of Q1 capital expenditures.

Cash Flow Quality

Cash-flow quality was the principal weakness in Q1. Operating cash flow was ¥20.3bn, only 0.30x reported net income of ¥68.6bn, below the 0.8x quality-warning threshold. This divergence was driven materially by ¥92.5bn of income-tax payments, ¥40.6bn inventory investment, and a ¥33.7bn decline in payables. A ¥66.5bn reduction in receivables and a ¥15.8bn increase in provisions partly offset these uses of cash, but did not fully bridge the gap between earnings and operating cash flow. The accruals ratio was 1.2%, which is low and does not independently indicate elevated accrual-accounting risk; the weak conversion is therefore more attributable to tax timing and working-capital movements in this quarter. The reported free cash flow was ¥48.8bn. Capital expenditures were ¥37.2bn and intangible-asset purchases were ¥5.6bn, reflecting ongoing investment in manufacturing capacity and pharmaceutical intellectual property. Investing cash flow was positive at ¥28.4bn, supported by ¥54.1bn of proceeds from investment sales and redemptions; this is less recurrent in nature than operating cash generation. The cash conversion cycle of 250 days is elevated versus the 120-day alert threshold. DSO of 107 days exceeds the 60-day benchmark, although receivables declined during the quarter; collection performance should be monitored for durability. DIO of 538 days substantially exceeds both the 90-day and 60-day alert thresholds and is the most significant working-capital concern. In pharmaceuticals, longer inventory cycles can reflect production lead times, safety-stock requirements, and global distribution complexity, but the scale of inventory relative to sales increases risks of obsolescence, write-downs, and future cash absorption. The concurrent inventory build and payables reduction are adverse to cash conversion and warrant close monitoring rather than being viewed as evidence of working-capital optimization.

Dividend Sustainability

The full-year forecast dividend is ¥100.00 per share, implying a forecast dividend payout ratio of approximately 72.5% against forecast EPS of ¥137.94. This is above the 60% conservative sustainability benchmark, but it remains below 100% and is supported by a substantial cash balance of ¥669.8bn. Q1 dividends paid were ¥71.2bn, exceeding Q1 net income of ¥68.6bn, although quarterly cash dividend payments are not necessarily matched to the earnings period that generated the distributable profit. Operating cash flow of ¥20.3bn did not cover the Q1 cash dividend payment, making near-term dividend funding dependent on opening liquidity, investment realizations, and financing cash flows rather than quarter-only operating cash generation. No material share repurchase cash outflow occurred in Q1, with treasury-share purchases limited to ¥0.5bn. The reported free cash flow of ¥48.8bn was below dividends paid, reinforcing the need for improved operating cash conversion over the remainder of the year. The balance-sheet liquidity buffer and predominantly long-term debt structure support flexibility, but sustaining the forecast dividend without weakening financial flexibility depends on the anticipated recovery in annual operating profit and cash generation.

Risk Assessment

Business risks include Profitability execution risk: SG&A increased 38.6% year on year, faster than 21.1% revenue growth, and drove a 560bp operating-margin decline to 14.8%. Achieving full-year operating-income growth of 24.0% requires a substantial later-year reversal in operating leverage., Pharmaceutical pipeline and regulatory risk: R&D spending of ¥115.5bn, equal to 20.1% of revenue, requires successful clinical development, approvals, launches, and reimbursement outcomes to generate an adequate return., Product lifecycle and pricing risk: Pharmaceutical earnings remain exposed to competition, generic or biosimilar entry, loss of exclusivity, government drug-pricing reforms, and payer reimbursement decisions., Inventory-management risk: DIO of 538 days is substantially above the quality-alert thresholds. Although extended inventory cycles can occur in pharmaceutical manufacturing and global supply chains, the level raises the risk of obsolescence, write-downs, and prolonged cash lock-up., Receivables-collection risk: DSO of 107 days exceeds the 60-day alert threshold. Receivables fell in Q1, which helped cash flow, but a sustained elevated DSO can increase credit and collection risk..

Financial risks include Cash-conversion risk: OCF/net income of 0.30x is below the 0.8x warning level. Q1 earnings did not convert into cash sufficiently to cover dividends from operating cash flow., Working-capital risk: The 250-day cash conversion cycle exceeds the 120-day alert threshold, driven particularly by inventory days and, to a lesser extent, receivable days. Inventory growth and falling payables were both cash-negative in Q1., Leverage and financing risk: Reported D/E of 1.42x is not at the 2.0x warning threshold, but non-current borrowings increased by approximately ¥199.9bn year on year. Finance costs rose to ¥3.2bn from ¥1.4bn, though interest coverage remains strong., Deferred-tax-asset utilization risk: Deferred tax assets of ¥449.7bn are material and depend on the availability of future taxable income for realization..

Key concerns include Highest priority: evidence that revenue growth can again translate into operating-profit growth, particularly whether SG&A intensity falls from 43.5% of revenue., Highest priority: normalization of cash conversion, including lower inventory intensity, sustained receivable collections, and stabilization of supplier-payment patterns., Medium priority: delivery against the full-year operating-income forecast, given the contrast between Q1’s 12.0% operating-income decline and full-year guidance for 24.0% growth., Medium priority: debt-funded liquidity expansion and the future use of the ¥200.0bn Q1 borrowing proceeds., Industry-specific priority: clinical, regulatory, pricing, and competitive outcomes that determine the payback on elevated R&D and commercial investment..

Investment Implications

Key takeaways include Q1 revenue growth was robust at 21.1%, but profit conversion weakened as SG&A growth outpaced sales growth., Operating margin fell 560bp to 14.8%, placing the core debate on whether the expense base is temporary launch/development investment or a more persistent structural burden., Annualized ROE of 16.1% remains above the 15% excellent benchmark, but leverage is a meaningful contributor and underlying margin performance weakened., Balance-sheet liquidity is ample, with a 2.92x current ratio and ¥669.8bn of cash and deposits, while near-term refinancing risk is low because borrowings are predominantly non-current., Cash conversion, not accounting profitability, is the central financial-quality issue: OCF/net income was 0.30x and the cash conversion cycle was 250 days., Full-year guidance implies later-period earnings acceleration, so subsequent quarterly margin progression and operating-cash-flow recovery are critical confirmation points..

Metrics to watch include Revenue growth versus the ¥2,340.0bn full-year forecast, Operating margin and SG&A-to-revenue ratio, particularly whether SG&A growth moderates below revenue growth, R&D intensity and evidence of pipeline progression, approvals, launches, and lifecycle execution, Operating cash flow to net income ratio, Inventory balance, DIO, inventory write-downs, and cash conversion cycle, Receivable balance and DSO, Long-term debt balance, finance costs, and use of financing proceeds, Progress toward ¥320.0bn operating-income and ¥251.0bn owner-attributable net-income guidance, Dividend cash coverage relative to operating cash flow and reported free cash flow.

Regarding relative positioning, Daiichi Sankyo retains characteristics of a high-investment global innovator pharma company: a 78.4% gross margin, 20.1% R&D intensity, and annualized 16.1% ROE. Its current financial position is liquid and goodwill exposure is low versus the stated M&A-risk benchmarks. Relative to a mature, cash-generative pharmaceutical profile, however, Q1 cash conversion is weak and working-capital intensity is unusually high, while the 14.8% operating margin is just below the 15% excellent-profitability benchmark.