Trend Micro Incorporated FY2026 Q2 Earnings Report

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Executive Summary

The key feature of the results was higher revenue but lower profit: while top-line growth continued, increased SG&A expenses pressured operating income. Revenue maintained double-digit growth at ¥1486.0B (+11.0% YoY), while operating income declined substantially to ¥217.9B (-23.5%). Ordinary income turned to growth at ¥248.2B (+15.6%), supported by non-operating foreign exchange gains and interest income, and net income was secured at ¥148.9B (+4.6%). The primary factor driving the decline in the operating margin was the 26.4% increase in SG&A expenses, which exceeded revenue growth.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥1486.0B, representing an 11.0% YoY increase. By region, AsiaPacific at ¥621.9B (+22.2%) and Europe at ¥393.2B (+17.0%) led growth, while Americas at ¥359.2B (+8.0%) and Japan at ¥441.6B (+0.5%) were nearly flat. The center of growth is shifting toward Asia and Europe.

【Profit and Loss】The increase in cost of sales was limited, and the gross margin improved to 77.2% (+approximately 1.0pt YoY); however, SG&A expenses increased 26.4% YoY to ¥928.5B, significantly outpacing revenue growth. As a result, operating income declined to ¥217.9B (-23.5%). Meanwhile, ordinary income turned to growth at ¥248.2B (+15.6%), boosted by foreign exchange gains of ¥13.7B and interest income of ¥16.4B. Net income increased only slightly to ¥148.9B (+4.6%), partly due to the burden of income taxes and other taxes (an effective tax rate of approximately 40%). The results were characterized by higher revenue but lower operating profit.

Segment Analysis

Segment profit was highest in Japan at ¥76.4B (17.3% margin), followed by AsiaPacific at ¥71.4B (11.5% margin, +6.9%), Europe at ¥51.8B (13.2% margin, -17.1%), and Americas at ¥22.8B (6.3% margin, -54.0%), which was the lowest. Although Americas posted 8.0% revenue growth, profit was halved, and deteriorating profitability made a significant contribution to the decline in the Company-wide operating margin. Japan also saw profit decline 26.2% despite nearly flat revenue growth of +0.5%, and lower profitability in the high-margin segment pushed down Company-wide profit. Overall, profit growth in AsiaPacific and Europe, the centers of growth, could not offset the increase in SG&A expenses, while changes in the regional mix are exerting downward pressure on the Company-wide margin.

Key Financial Indicators

【Profitability】The operating margin declined from the previous year to 14.7%, while the net profit margin contracted slightly from the previous year to approximately 10.0%. The gross margin improved from the previous year to 77.2%, indicating a favorable product and service mix.【Cash Quality】Operating Cash Flow (OCF) was ¥355.4B, approximately 2.4 times net income, indicating solid cash backing for earnings. Free Cash Flow (FCF) was positive at ¥72.6B, supported by a decrease in trade receivables (a ¥235.8B contribution).【Investment Efficiency】ROE was 12.5%, supported by the combination of net profit margin, asset efficiency, and financial leverage. Capital expenditures were ¥7.2B, small relative to depreciation and amortization of ¥131.4B, suggesting that allocation is focused more on intangible assets, such as software, than on tangible investments.【Financial Soundness】The Equity Ratio was 29.4%, slightly down from 30.2% in the previous year. Cash and deposits were ¥2199.0B, accounting for approximately 54% of total assets, indicating a certain liquidity buffer.

Cash Flow Analysis

OCF was ¥355.4B, nearly flat at +1.4% YoY, but remained well above net income of ¥148.9B, indicating solid cash conversion of earnings. Investing Cash Flow (ICF) was -¥282.8B. Although capital expenditures were limited to ¥7.2B, other investment items accounted for most of ICF. Financing Cash Flow (FCF) was -¥282.5B, including share buybacks of ¥50.0B and dividend payments of ¥235.6B. As a result, Free Cash Flow (OCF + ICF) was positive at ¥72.6B, with progress in the collection of trade receivables (a ¥235.8B contribution) supporting cash generation. The total of dividends and share buybacks during the first half exceeded FCF, with capital allocation supported by the high level of cash and deposits of ¥2199.0B.

Earnings Quality

The Company’s recurring earnings structure is supported by a high gross margin of 77.2%; however, the 15.6% increase in ordinary income was substantially supported by non-operating factors, namely foreign exchange gains of ¥13.7B and interest income of ¥16.4B, whose repeatability over the full year is limited. Extraordinary income was minimal at ¥1.2B, and the impact of one-time factors was small. Non-operating income was equivalent to approximately 2.1% of revenue, consisting primarily of interest income and foreign exchange gains. OCF was approximately 2.4 times net income, while income taxes and other taxes paid were ¥90.9B against operating cash flow before taxes and other adjustments of ¥430.1B; from an accrual perspective, earnings quality appears high. However, operating income itself declined 23.5%, and it should be noted that growth in ordinary income and net income depended on non-operating factors.

Earnings Forecasts and Guidance

Progress against the full-year plan was 49.3% for revenue (¥1486.0B/¥3015.0B), 49.1% for operating income (¥217.9B/¥444.0B), and 54.0% for ordinary income (¥248.2B/¥460.0B). Although broadly consistent with standard progress of approximately 50% at the half-year mark, ordinary income is somewhat ahead of schedule, apparently due in part to the boost from non-operating factors such as foreign exchange gains. The full-year operating income forecast calls for a 23.2% YoY decline, broadly consistent with the first-half performance of -23.5%. In addition, the earnings forecast was revised during the current quarter.

Shareholder Returns

As of the end of Q2, no dividend had been paid, and the year-end dividend remained undecided. Cash dividend payments during the first half were ¥235.6B, while share buybacks were ¥50.0B; their combined total exceeded FCF of ¥72.6B. Although immediate funding constraints are limited due to the ample level of cash and deposits at ¥2199.0B, shareholder returns exceed internally generated cash flow. Accordingly, the trend in FCF generation during the second half will be a focus with respect to the source of future shareholder returns.

Risk Factors

1. Risk of margin deterioration due to high SG&A growth: SG&A expenses increased 26.4% YoY, significantly exceeding revenue growth of +11.0%. If this trend continues, the operating margin may continue to decline structurally.

2. Deteriorating profitability in the Americas segment: The segment’s operating margin was 6.3%, the lowest among the four segments, and operating income declined substantially by 54.0% YoY. The profitability gap with other regions is widening.

3. Dependence of profit on non-operating factors: Growth in ordinary income was supported by non-operating factors such as foreign exchange gains of ¥13.7B and interest income of ¥16.4B, while operating income itself declined 23.5%. The repeatability of these non-operating factors is considered limited.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability, as measured by both the operating margin and net profit margin, is slightly below the industry median.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median and is also below the lower bound of the IQR.

※Source: Compiled by the Company

Key Points from the Results

1. Despite higher revenue, the 26.4% increase in SG&A expenses exceeded revenue growth of 11.0%, causing the operating margin to decline from the previous year. The balance between top-line expansion and cost management will be a key focus going forward.

2. Growth in ordinary income and net income was supported by non-operating factors such as foreign exchange gains and interest income, while operating income itself declined. When assessing earnings quality, it is necessary to distinguish between operating performance and non-operating factors.

3. By region, deteriorating profitability in Americas (6.3% margin) and the decline in profit in Japan (-26.2%) pushed down the Company-wide margin, while AsiaPacific and Europe led growth. Changes in the regional mix warrant attention as a structural change in profitability.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,429–¥1,517 at a ±1% change in the cost of equity, and ¥1,457–¥1,495 at a ±0.1 change in ω.

Notes:

• Goodwill amortization of 5.4 yen/share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 with a professional as necessary.

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