NIPPON STEEL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.64T
• Operating Income: ¥-2.83B
• Net Income: ¥-98.91B
• EPS: ¥-21.69

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

Nippon Steel (5401) reported FY2026 Q2 (IFRS, consolidated) revenue of 46,356.47, up 5.8% YoY, indicating resilient topline despite a challenging steel environment. Gross profit was 6,847.44 for a gross margin of 14.8%, showing reasonable spread capture relative to raw material and energy cost volatility. However, operating income slipped to a marginal loss of -28.35, implying an operating margin of approximately -0.06%, as significant other operating expenses offset a still-positive gross-to-SG&A spread. SG&A expenses were 3,914.54, or 8.4% of sales, leaving gross profit minus SG&A at about 2,932.9; the swing to operating loss indicates roughly 2,961 of net other operating expenses during the period. Profit before tax deteriorated to -301.04, and net income was -1,133.80, driven primarily by a large tax expense (1,051.83) despite a pre-tax loss, resulting in a highly negative effective tax rate (-349.4%). Total comprehensive income was -1,114.97, close to the net loss, suggesting limited offset from OCI in the half. DuPont decomposition shows a net margin of -2.5%, asset turnover of 0.331, and financial leverage of 2.47x, yielding a calculated ROE of -2.0% (matches reported), reflecting margin pressure as the key driver. The balance sheet remains substantial, with total assets of 140,013.79 and total equity of 56,648.00 (equity ratio 36.8%), suggesting a solid capital base. Debt-to-equity is 0.89x, acceptable for a cyclical, capital-intensive steel major. Liquidity analysis is constrained by unreported current liabilities and cash flow statements, but current assets are sizable at 45,485.03, including large inventories (21,990.96) and receivables (14,304.35). Cash and equivalents stand at 6,725.26, providing notable liquidity buffers. Equity-method income was 839.83, which is material relative to pre-tax results; given pre-tax loss, this implies sizable adverse non-operating items elsewhere (details unreported). Book value per share is calculated at 1,083.89 JPY, anchored by retained earnings of 38,199.34 and capital surplus of 5,784.57. Dividend data are unreported, but a calculated payout ratio of -758.3% indicates dividends despite a net loss, suggesting adherence to a dividend policy partially decoupled from short-term earnings. Overall, the quarter shows stable revenue and gross margin but weak operating and bottom-line outcomes due to heavy other operating costs and an unusually high tax expense, with the balance sheet and liquidity remaining comparatively sound. Data limitations are material (many items unreported), so conclusions focus on reported non-zero items and derived relationships.

Profitability Analysis

ROE_decomposition: ROE -2.0% = Net margin (-2.5%) x Asset turnover (0.331) x Leverage (2.47x). The negative net margin is the primary drag; turnover is modest for a steelmaker and leverage is moderate. margin_quality: Gross margin at 14.8% indicates acceptable spread capture, but operating margin is approximately -0.06% as gross profit (6,847.44) could not offset SG&A (3,914.54) plus significant other operating expenses (~2,961). The gap suggests large one-off or cyclical operating costs (e.g., maintenance, environmental, energy hedges, impairment/restructuring) during the half. operating_leverage: Revenue rose 5.8% YoY but operating income fell to a slight loss, indicating negative operating leverage this period. Fixed-cost absorption appears pressured by elevated other operating expenses; SG&A ratio is controlled at ~8.4%, so the weak operating result is not SG&A-driven but rather other operating costs.

Growth Assessment

revenue_sustainability: Topline growth of +5.8% YoY is solid given global steel demand uncertainties. Receivables and inventories are large, consistent with scale; no evidence (from reported numbers) of revenue quality issues, but working capital intensity remains high. profit_quality: Core spread (gross margin) is positive, yet profitability is impaired by heavy other operating expenses and a large tax expense despite a pre-tax loss. Equity-method income (839.83) is significant; reliance on affiliates contributed positively but was outweighed by non-operating and tax headwinds. outlook: Near-term earnings hinge on normalization of other operating expenses, stabilization of non-operating items (FX, financial assets, derivative valuations), and a return to a normal tax run-rate. Sustained gross margin and improved operating cost discipline are required to restore operating profit; demand recovery, raw material price trends (iron ore/coking coal), and energy cost trajectory will be key.

Financial Health

liquidity: Cash and equivalents are 6,725.26. Current assets total 45,485.03, with receivables of 14,304.35 and inventories of 21,990.96. Current liabilities and detailed liquidity ratios are unreported, so the current and quick ratios are not calculable. solvency: Total equity is 56,648.00 (equity ratio 36.8%). Debt-to-equity is reported at 0.89x, reasonable for the sector. While interest coverage cannot be computed (interest expense unreported), balance sheet scale and equity base suggest adequate solvency. capital_structure: Assets 140,013.79 vs liabilities 50,390.77 indicate moderate leverage. Retained earnings of 38,199.34 underpin net assets; capital surplus is 5,784.57. Interest-bearing debt breakdown is unreported; nonetheless, reported leverage metrics imply manageable gearing.

Cash Flow Quality

earnings_quality: Net loss (-1,133.80) contrasts with a tax expense (+1,051.83) and material equity-method income (839.83), implying significant below-operating or non-cash items. With OCF and D&A unreported, accruals-based diagnostics are limited. FCF_analysis: Operating CF and capex are unreported, so FCF cannot be assessed. Given the capital intensity of steel, capex is typically substantial; absent data, we cannot judge coverage. working_capital: Estimated half-year cash conversion cycle approximates 82 days: DSO ~56 days (AR/revenue), DIO ~108 days (inventory/COGS), DPO ~82 days (AP/COGS). Elevated inventories are typical but tie up cash; any destocking would be cash positive. Note: current liabilities detail is unreported.

Dividend Sustainability

payout_ratio_assessment: The calculated payout ratio of -758.3% implies dividends paid despite a net loss, drawing on retained earnings and balance sheet strength, but exact dividend amounts and DPS are unreported. FCF_coverage: Not assessable due to unreported OCF and capex. Coverage of dividends from FCF cannot be determined. policy_outlook: Given the negative earnings and maintained payout signal (implied by the ratio), management may prioritize stable to policy-based dividends over near-term earnings volatility; sustainability will depend on earnings normalization and cash generation.

Risk Assessment

Business Risks:

• Cyclicality in global steel demand (construction, autos, machinery).
• Raw material price volatility (iron ore, coking coal) impacting spreads.
• Energy price and supply risks affecting costs and operations.
• Competitive pressure from regional producers and imports.
• Product mix shifts and pricing power erosion in downcycles.
• Execution risk on large capex projects and maintenance turnarounds.
• Environmental compliance costs and potential carbon pricing impacts.

Financial Risks:

• Large other operating expenses and non-operating losses not fully disclosed.
• Tax volatility evidenced by large tax expense in a loss period (negative effective rate).
• Working capital intensity and potential inventory valuation risks.
• Leverage sensitivity if spreads compress and cash flows weaken.
• Equity-method income concentration risk from affiliates.

Key Concerns:

• Negative operating leverage despite revenue growth.
• Significant unreported non-operating line items driving pre-tax loss.
• Tax charge against a pre-tax loss materially deepening the net loss.
• High inventories tying up capital and exposing to price revaluation risks.
• Limited visibility due to several unreported items (OCF, capex, interest).

Investment Implications

Key Takeaways:

• Topline grew 5.8% YoY; gross margin 14.8% shows spreads are intact.
• Operating income turned slightly negative (-28.35), driven by sizable other operating expenses.
• Pre-tax loss (-301.04) and substantial tax expense (+1,051.83) produced a net loss (-1,133.80).
• ROE is -2.0%, primarily due to the negative net margin; leverage is moderate at 2.47x.
• Equity-method income (839.83) is material but outweighed by other non-operating headwinds.
• Balance sheet remains solid (equity ratio 36.8%, D/E 0.89x) with cash of 6,725.26.
• Working capital heavy: inventories 21,990.96; estimated CCC ~82 days.
• Dividend likely maintained despite loss (implied by payout ratio), but cash coverage unknown.

Metrics to Watch:

• Normalization of other operating expenses and disclosure of their components.
• Tax rate trajectory and drivers of the negative effective tax rate.
• Operating cash flow and capex to gauge FCF coverage of dividends.
• Inventory levels and turnover; price variance and valuation impacts.
• Spread indicators: steel prices vs raw materials (iron ore, coking coal) and energy costs.
• Non-operating items: FX, investment valuation, derivative impacts, interest expense.
• Equity-method income stability and underlying affiliate performance.

Relative Positioning: Within Japanese integrated steel peers, Nippon Steel retains scale advantages and a strong equity base, but this half’s results show weaker operating leverage and higher below-OP volatility versus a typical mid-cycle profile; balance sheet resilience partially offsets earnings volatility.

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
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