Sumitomo Rubber Industries,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥861.61B
• Operating Income: ¥46.13B
• Net Income: ¥6.66B
• EPS: ¥98.93

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

Sumitomo Rubber Industries (5110) reported FY2025 Q3 (IFRS, consolidated) results with revenue of 8,616.09 (100M JPY), down 1.5% YoY, but operating income surged to 461.33 (+301.7% YoY), indicating strong margin recovery despite softer top-line. Gross margin expanded to 30.2% with gross profit of 2,600.92, highlighting favorable input cost dynamics and/or improved price/mix. SG&A was 1,985.78, implying an SG&A ratio of about 23.0%, and an operating margin of roughly 5.35% (operating income/revenue). EBITDA reached 1,086.67 (margin 12.6%), providing a solid buffer for ongoing investments and debt service. Net income was 260.13 (+542.3% YoY), translating to a net margin of 3.0% and EPS of 98.93 yen. DuPont decomposition shows ROE of 3.8% = net margin 3.0% × asset turnover 0.608 × financial leverage 2.08x, confirming modest capital efficiency despite cyclical profit recovery. Operating cash flow was robust at 665.84, 2.56x net income, signaling high earnings quality and good cash conversion this period. Free cash flow was positive at 115.32 after capital expenditures of 416.10, though FCF margin was a thin 1.3%, reflecting ongoing investment needs. The balance sheet remains sound with total assets of 14,172.11 and total equity of 6,812.92 (equity ratio 46.7%), while the reported debt-to-equity ratio of 0.98x suggests a meaningful but manageable leverage profile. Working capital intensity remains a focus: inventories are 2,909.47 and accounts receivable 2,216.79 against accounts payable of 1,865.87, indicating capital tied up in the operating cycle. Cash and equivalents stood at 1,003.82, providing liquidity support, though current ratio and quick ratio are not available due to unreported current liabilities. The effective tax rate was low at 13.3%, supporting bottom-line expansion. Comprehensive income of 246.35 was slightly below net income, implying modest negative OCI effects (e.g., FX or securities valuation). Dividend cash outflow was 214.46, with a calculated payout ratio of 58.6% and an FCF coverage of 0.76x, indicating partial reliance on operating cash and potentially on balance sheet capacity to fund distributions. Overall, results reflect a clear profitability rebound driven by cost relief and operating discipline, but ROE remains below typical cost of equity and FCF headroom is limited by capex and working capital needs. Data gaps (non-operating items, interest expense, current liabilities) constrain deeper analysis of financial costs, liquidity ratios, and ordinary income trends.

Profitability Analysis

ROE of 3.8% is decomposed into a 3.0% net margin, 0.608x asset turnover, and 2.08x financial leverage. Operating margin at approximately 5.35% (461.33/8,616.09) shows substantial recovery versus the prior-year trough implied by +301.7% YoY operating income growth. Gross margin of 30.2% vs SG&A ratio of 23.0% indicates improved contribution margins and controlled overhead, though there appears to be additional other operating items between gross profit and operating income. EBITDA margin of 12.6% provides operating flexibility and cushions volatility in volumes. Net margin at 3.0% remains modest for the sector, reflecting pricing pressure and/or still-normalizing cost pass-through, but is a clear improvement YoY. The effective tax rate of 13.3% aided net profitability, likely reflecting credits, geographic mix, or discrete items. Operating leverage appears positive: despite a 1.5% revenue decline, operating income rose sharply, implying cost tailwinds (raw materials, energy, logistics) and/or improved price/mix outpaced volume softness. Asset turnover of 0.608 indicates moderate capital intensity typical of tire manufacturing; further inventory optimization would support efficiency improvements. Overall profitability has inflected, but sustainability will depend on maintaining price/mix, managing input costs, and stabilizing volumes.

Growth Assessment

Top-line contracted 1.5% YoY to 8,616.09, indicating macro or demand softness in certain regions or channels (likely OE), partially offset by price/mix initiatives. The sharp rebound in operating income (+301.7% YoY) suggests that the growth driver was margin recovery rather than volume expansion. Net income growth (+542.3% YoY) was amplified by a low effective tax rate and better operating fundamentals. With EBITDA at 1,086.67 and OCF at 665.84, the company is generating adequate internal funds to support capex while maintaining positive FCF. Sustainability hinges on replacement demand resilience, continued price realization, product mix shift to high-value tires, and stable raw material inputs (natural rubber, petrochemicals). The slight negative in total comprehensive income vs net income points to minor external headwinds (e.g., FX valuation) but not a structural issue. Near-term outlook is cautiously constructive: margin tailwinds could persist if input costs remain benign and mix upgrades continue; however, revenue growth may be constrained by macro conditions and OE exposure. Key to sustaining profit growth will be volume stabilization, further SG&A discipline, and leveraging capacity without excessive expansion. With ROE at 3.8%, incremental growth should target higher returns through mix and efficiency, not just scale.

Financial Health

Total assets are 14,172.11 with equity of 6,812.92, yielding an equity ratio of 46.7%, supportive of solvency. Reported debt-to-equity is 0.98x, implying interest-bearing debt near the size of equity, though exact debt composition and maturities are unreported. Liquidity is adequate with cash and equivalents at 1,003.82; however, the current ratio and quick ratio are not calculable due to unreported current liabilities data. Working capital is sizeable as evidenced by current assets of 6,697.62; inventories (2,909.47) and accounts receivable (2,216.79) outweigh accounts payable (1,865.87), indicating a net operating working capital investment that can pressure cash conversion during slowdowns. Financing cash flow was -328.56, reflecting dividends and likely net debt repayment, suggesting a conservative stance. The equity base is healthy (retained earnings 5,208.15, capital surplus 397.88), providing loss absorption capacity. The solvency profile appears stable, but lack of disclosure on interest-bearing debt breakdown and current liabilities limits precision on short-term refinancing and covenant buffers.

Cash Flow Quality

OCF of 665.84 is 2.56x net income (260.13), indicating strong cash earnings quality this period. EBITDA-to-OCF conversion is about 61% (665.84/1,086.67), reasonable given working capital needs in a manufacturing context. Free cash flow was positive at 115.32 after capex of 416.10; FCF margin stood at roughly 1.3% of revenue, modest but positive. Capex was 0.67x depreciation and amortization (416.10 vs 625.34), implying maintenance-plus investment pace and potential for FCF improvement if capex discipline sustains. Working capital remains a swing factor: inventories (2,909.47) are high relative to nine-month cost of sales (6,148.50), pointing to elevated inventory days; any normalization could release cash. Financing cash flows of -328.56 include dividend payments of -214.46 and likely net debt reduction, funded by OCF. Overall, cash generation underpins ongoing investments and dividends, but headroom is not ample if working capital builds or margins compress.

Dividend Sustainability

The calculated payout ratio is 58.6% of net income, which is elevated but within the range of mature industrials prioritizing shareholder returns. Free cash flow coverage of dividends is 0.76x, indicating dividends exceeded FCF in the period and were effectively supported by operating cash and balance sheet capacity. With OCF at 665.84 and FCF at 115.32, the current dividend level constrains financial flexibility if macro or input costs deteriorate. Equity ratio (46.7%) and liquidity provide some buffer, but sustained dividend affordability will require continued margin support and working capital discipline. Given capex needs tied to product upgrading and capacity maintenance, a dividend aligned to mid-cycle FCF would be prudent; future policy likely balances stability with FCF reality. Absent disclosure of annual DPS and explicit policy, we infer a target of steady or gradually rising dividends contingent on FCF improvements.

Risk Assessment

Business Risks:

• Raw material price volatility (natural rubber, synthetic rubber, petrochemical derivatives)
• Foreign exchange fluctuations (USD/JPY, EUR/JPY, emerging market currencies)
• Demand cyclicality in OE and replacement markets across Japan, North America, Europe, and ASEAN
• Competitive pricing pressure from global tire majors and regional players
• Product mix risk in transitioning to high-value-added, EV-ready and premium tires
• Energy and logistics cost volatility, particularly in Europe
• Regulatory and ESG requirements (labelling, rolling resistance, emissions in supply chain)

Financial Risks:

• Leverage near 1.0x D/E with unreported interest-bearing debt details (refinancing and interest rate risk)
• Dividend FCF coverage below 1x, limiting buffer in a downturn
• Working capital intensity (high inventory levels) impacting cash conversion
• Potential pension or lease liabilities not visible in provided data
• Limited visibility on interest coverage given unreported interest expense

Key Concerns:

• Sustainability of margin gains if raw material deflation reverses
• Revenue softness (-1.5% YoY) and the need to stabilize volumes
• ROE at 3.8% remains below typical cost of equity, necessitating further efficiency and mix improvements
• FCF headroom modest relative to dividend outflows and ongoing capex
• Data gaps on non-operating items and current liabilities reduce transparency

Investment Implications

Key Takeaways:

• Significant profitability recovery: operating margin ~5.35% and EBITDA margin 12.6% despite slight revenue decline
• High cash earnings quality with OCF/NI at 2.56x
• Positive but thin FCF (115.32), with capex at 0.67x D&A supporting asset base without overinvestment
• Solid balance sheet with 46.7% equity ratio; D/E ~0.98x implies manageable leverage
• Dividend payout elevated (58.6%) with FCF coverage below 1x, requiring continued strong OCF
• ROE of 3.8% improving but still modest; further gains hinge on mix, cost control, and asset efficiency
• Working capital, particularly inventories, remains a lever for incremental FCF

Metrics to Watch:

• Raw material cost indices (natural rubber, butadiene) and energy costs
• Price/mix realization versus volume trends by region
• Inventory days and receivables/payables turnover
• Operating margin and EBITDA margin trajectory
• Free cash flow and capex-to-D&A ratio
• FX rates (USD/JPY, EUR/JPY) and translation effects
• ROE progression and asset turnover improvements

Relative Positioning: Relative to domestic peers, Sumitomo Rubber exhibits lower profitability than top-tier peers like Bridgestone but shows clear improvement in operating and EBITDA margins this period; balance sheet strength is solid, while FCF generation remains thinner, making ongoing cost/mix execution and working capital management more critical for closing the gap.

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