NORITAKE CO.,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥68.31B
• Operating Income: ¥4.74B
• Net Income: ¥5.43B
• Earnings per Unit (EPU): ¥192.69

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution Information

Segment 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

Verdict: A soft FY2026 Q2 with margin compression and weak cash conversion; earnings held up by sizable non-operating gains while core operations decelerated. Revenue declined 2.1% YoY to 683.14, and operating income fell 12.9% YoY to 47.41, taking operating margin to roughly 6.9%. Ordinary income decreased 7.7% YoY to 66.64, aided by non-operating income of 21.80 versus expenses of 2.57. Net income declined 10.4% YoY to 54.21, with net margin at about 7.9%. Gross profit was 193.29 with a gross margin of 28.3%, but SG&A at 145.88 limited operating leverage. Non-operating items were material: dividend income of 6.16 and interest income of 1.66 contributed to a net non-operating gain of 19.23, representing about 26.6% of profit before tax. Compared to last year, operating margin compressed by about 86 bps (from ~7.8% to ~6.9%), and net margin compressed by roughly 72 bps (from ~8.7% to ~7.9%). Cash flow quality weakened: operating cash flow of 34.15 covered only 63% of net income (OCF/NI 0.63x), flagging working capital drag or accrual reliance. Balance sheet liquidity remains strong with a current ratio of 204.5% and quick ratio of 178.3%, and interest coverage is robust at 94.8x. Leverage is conservative (D/E 0.37x), but ROE is modest at 3.5% and ROIC at 2.3%, well below typical cost of capital. Total comprehensive income of 92.97 exceeded net income, likely reflecting fair value gains on investment securities (investment securities at 487.02), which are volatile and non-cash. Financing cash inflow of 27.58 coexisted with share repurchases of 41.44, implying some reliance on financing to support shareholder returns. The calculated payout ratio of 70% looks elevated relative to cash generation, raising questions on dividend flexibility absent stronger OCF or lower capex (capex unreported). Forward-looking, margin stabilization, tighter working capital management, and improving ROIC will be key to re-rate; continued dependence on non-operating gains is a risk if markets soften. Overall, solid liquidity cushions near-term pressure, but core profitability and cash conversion need improvement for a healthier trajectory.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.5% = Net Profit Margin 7.9% × Asset Turnover 0.323 × Financial Leverage 1.37x. The largest change driver YoY appears to be margin compression at the operating level (operating income -12.9% vs revenue -2.1%), which reduced net profit margin. Asset turnover remains low at 0.323, consistent with a large asset base (investment securities and noncurrent assets) against mid-single-digit operating margins. Financial leverage is modest (assets/equity 1.37x), providing limited amplification to returns. Business drivers: weaker top-line and/or less favorable mix and cost absorption increased SG&A burden relative to sales, while non-operating gains partially masked core softness at the ordinary income level. Sustainability: non-operating income (dividends, interest) is partly recurring but market-sensitive; reliance at ~40% of operating income is high and not a robust foundation for sustained ROE expansion. Concerning trend: SG&A did not flex down sufficiently with sales (operating margin fell ~86 bps), indicating weak operating leverage; without SG&A control or pricing power, incremental margins may remain constrained.

Growth Assessment

Revenue declined 2.1% YoY to 683.14, reflecting softer demand or mix in core ceramic/industrial segments. Operating income fell 12.9% YoY to 47.41, underperforming revenue due to margin pressure. Ordinary income dropped 7.7% YoY to 66.64 as non-operating income cushioned the decline. Net income decreased 10.4% YoY to 54.21; effective tax rate was stable at ~25%. EBITDA was 74.54, implying an EBITDA margin of 10.9%, adequate but not expanding. Growth quality is mixed: the non-operating income ratio of 40.2% indicates a meaningful contribution from financial income, which is less controllable. Total comprehensive income of 92.97 exceeded NI, likely driven by valuation gains, not core growth. With ROIC at 2.3%, incremental investments currently yield below-target returns, signaling a need for portfolio optimization, pricing, and cost initiatives. Outlook depends on demand normalization in industrial end-markets, input cost stability (energy for kilns), and FX; absent tangible cost or mix improvements, near-term profit growth looks constrained.

Financial Health

Liquidity is strong: current ratio 204.5% and quick ratio 178.3% comfortably exceed benchmarks; no warnings for Current Ratio < 1.0. Working capital is ample at 476.65; cash and deposits of 163.72 cover short-term loans of 151.10, reducing near-term refinancing risk. Solvency is conservative: debt-to-equity ratio 0.37x and interest coverage 94.82x indicate low financial risk; no D/E > 2.0 warning. Maturity mismatch risk appears limited given current assets of 932.91 vs current liabilities of 456.26, though reliance on short-term borrowing warrants monitoring if OCF remains soft. Off-balance sheet obligations were not disclosed in the provided data; none can be assessed.

Cash Flow Quality

OCF/Net Income is 0.63x (<0.8), a quality concern suggesting working capital build or accrual-driven earnings. Free cash flow is unreported; dividend and capex coverage cannot be fully assessed. Financing cash inflow of 27.58 alongside share repurchases of 41.44 implies external funding helped support shareholder returns, which may not be sustainable if OCF does not improve. Potential working capital signals: lower sales with sticky receivables or inventory can depress OCF; accounts receivable at 302.15 and inventories at 119.62 are sizable versus the quarter’s scale, but lack of YoY data limits firm conclusions. With EBITDA of 74.54 and interest expense at only 0.50, interest burden is negligible; the cash challenge is operating conversion, not financing costs.

Dividend Sustainability

The calculated payout ratio is 70%, above the <60% benchmark, indicating a tighter cushion. With OCF/NI at 0.63x and FCF unreported, cash coverage of dividends is uncertain and likely stretched unless working capital reverses or capex is modest. Share repurchases of 41.44 further increase cash commitments; combined with modest OCF, distributions may depend on balance sheet liquidity or incremental financing in the short term. Policy outlook: absent stronger OCF or profit growth, maintaining a high payout may crowd out reinvestment or require scaling back buybacks first; dividend stability hinges on improving cash conversion and core margins.

Risk Assessment

Business Risks:

• Operating margin compression (~86 bps YoY) amid revenue decline (-2.1%) indicates weaker operating leverage.
• High dependence on non-operating income (non-operating income ratio ~40%) to sustain ordinary profits.
• ROIC at 2.3% is below typical cost of capital, implying value dilution risk if not improved.
• End-market cyclicality in industrial ceramics (e.g., automotive, semiconductor, tooling) can pressure volumes and pricing.
• Energy/input cost volatility (gas/electricity for kilns) can squeeze margins if not hedged or passed through.

Financial Risks:

• OCF/NI at 0.63x signals weak cash conversion; prolonged working capital build could force higher borrowings.
• Exposure to market valuation of investment securities (487.02) can swing comprehensive income and capital.
• Reliance on short-term loans (151.10) increases rollover risk if credit conditions tighten, albeit mitigated by cash and liquidity.
• Dividend and buyback commitments may exceed internally generated cash in the near term.

Key Concerns:

• Sustained low ROE (3.5%) and ROIC (2.3%) vs targets.
• Margin resilience if demand remains soft and SG&A stays inflexible.
• Volatility in dividend/interest income and potential decline if equity markets weaken.
• Limited visibility on capex and FCF due to unreported investing cash flows.

Investment Implications

Key Takeaways:

• Core profitability weakened: operating income -12.9% on revenue -2.1%, with ~86 bps operating margin compression.
• Earnings supported by sizable non-operating gains; net non-operating contribution ~19.23 to ordinary income.
• Cash conversion is weak (OCF/NI 0.63x), raising quality concerns.
• Balance sheet strength (current ratio ~205%, D/E 0.37x, interest coverage ~95x) provides cushion.
• Capital efficiency is low: ROE 3.5%, ROIC 2.3%, suggesting need for margin/asset optimization.
• Shareholder returns include significant buybacks (41.44), partially financed by external cash flows.

Metrics to Watch:

• Operating margin and SG&A trend vs sales.
• OCF/NI and working capital changes (receivables, inventories).
• ROIC progression and segment returns (if disclosed).
• Non-operating income sources (dividends/interest) and market sensitivity.
• Order trends in key end-markets (auto, semiconductor, industrial equipment).
• Capex and FCF disclosure to assess dividend/buyback coverage.

Relative Positioning: Compared to Japanese industrial peers, Noritake exhibits strong liquidity and low leverage but weaker capital efficiency and cash conversion this quarter; reliance on non-operating gains to support earnings is higher than typical best-in-class operators, suggesting greater sensitivity to financial market conditions until core margins recover.

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