JFE Holdings,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.23T
• Operating Income: ¥45.77B
• Net Income: ¥28.36B
• EPS: ¥41.94

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

FY2026 Q2 was a soft quarter for JFE Holdings, with topline contraction and materially lower bottom line, while equity-method income played an outsized role in profit composition. Revenue fell 8.9% YoY to 22,326.49, gross profit was 2,429.32, and operating income reached 457.65. Net income declined 37.2% YoY to 266.76, implying a net margin of 1.2%. Gross margin printed at 10.9%, and operating margin was approximately 2.1% (457.65 on 22,326.49). SG&A was 2,045.46, or 9.2% of sales, indicating tight room for operating leverage at current pricing and volume levels. Other operating items appear supportive: operating income exceeds gross profit less SG&A by roughly 73.8, suggesting net positive other operating income. Below operating profit, profit before tax was 341.74; given equity-method income of 228.19, other non-operating items (including finance costs/FX/derivatives) likely weighed heavily, with an implied net non-operating expense of about 344. The effective tax rate was 17.0%. Equity-method income accounted for 66.8% of pretax profit, a high dependency that increases earnings volatility. ROE was 1.0% (DuPont: 1.2% net margin × 0.395 asset turnover × 2.20x leverage), and ROIC was 1.5%, well below the 7–8% target typical for capital-intensive industries aiming to cover cost of capital. The equity ratio was a solid 44.4%, and D/E of 1.20x remains within conservative bounds, though interest-bearing debt details were not disclosed. Cash flow disclosure was limited (OCF, capex, and FCF unreported), preventing a full earnings quality assessment; this is important given a reported payout ratio of 239.7%. Margin change in basis points versus the prior year cannot be precisely quantified due to missing comparative margin disclosures, but the 37.2% decline in net income versus an 8.9% revenue drop implies compression at lower line items. With commodity steel price normalization, potential FX headwinds, and higher non-operating costs, near-term earnings visibility remains constrained. Forward-looking, stabilization hinges on steel spreads, raw material costs (iron ore/coking coal), and the sustainability of equity-method contributions. Balance sheet resilience provides some cushion for decarbonization investments, but sub-par ROIC underscores the urgency of portfolio and cost discipline. Overall, the quarter indicates cyclical pressure, high reliance on affiliates, and the need for improved capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 1.2% × Asset turnover 0.395 × Financial leverage 2.20x = ROE 1.0%. The dominant drag is the thin net margin, driven by heavier non-operating burdens (implied −344 vs equity-method +228), despite a positive contribution from other operating items (~+74) and an operating margin of ~2.1%. Asset turnover at 0.395 reflects the capital intensity of steel and soft volume/price, while leverage at 2.20x is moderate but not excessive. The most notable change component this quarter, qualitatively, is margin pressure at the net level, as net income fell 37.2% on an 8.9% revenue decline, implying lower operating leverage and non-operating headwinds. Business drivers include weaker steel spreads, possible FX/interest expense, and higher costs that SG&A discipline could not fully offset. Sustainability: equity-method income (228.19; 66.8% of PBT) is inherently volatile with commodity and affiliate cycles; non-operating headwinds (interest/FX) can persist if rates/FX remain unfavorable. Concerning trends: SG&A at 9.2% of sales leaves limited buffer; while we lack YoY SG&A growth, the profit sensitivity suggests operating leverage is weak at current price/cost points.

Growth Assessment

Revenue contracted 8.9% YoY to 22,326.49, indicating softer demand/pricing in steel markets. Operating income of 457.65 and net income of 266.76 (−37.2% YoY) show profit pressure exceeding the pace of revenue decline, consistent with compressed spreads and heavier non-operating expenses. Equity-method income (228.19) was a key earnings pillar; however, such contributions are cyclical. With gross margin at 10.9% and operating margin around 2.1%, incremental growth likely requires either price recovery, raw material cost relief, or deeper cost rationalization. Reported ROIC at 1.5% signals returns well below the cost of capital, limiting self-funded growth without portfolio optimization. Near-term outlook depends on steel price normalization, automotive/construction demand in Japan/overseas, and coking coal/iron ore price paths. Decarbonization investments and product mix upgrades (high-grade steel) are medium-term levers but currently weigh on ROIC. Given missing disclosure on capex and OCF, we cannot determine if growth is being funded prudently through internal cash generation. Overall growth quality is modest and sensitive to external commodity and currency factors.

Financial Health

Total assets were 56,517.91 with total equity of 25,687.63 (equity ratio 44.4%), indicating a solid capital base. Debt-to-equity is 1.20x, within a conservative range for a cyclical, capital-intensive sector. Current assets were 23,656.20; current liabilities were not reported, so the current ratio cannot be assessed—no explicit warning triggered. Accounts payable were 5,577.09 versus inventories of 11,519.86 and receivables of 6,874.49, suggesting good coverage of trade payables by working capital components, but maturity mismatch risk cannot be fully evaluated without short-term debt disclosure. Cash and equivalents were 1,831.86; interest-bearing debt details and maturities were unreported, limiting solvency analysis and interest coverage assessment. No off-balance sheet obligations were disclosed in the data set.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were unreported, so OCF/Net Income and FCF coverage cannot be calculated. The reliance on equity-method income (66.8% of pretax) introduces volatility to cash conversion because affiliate earnings may not translate to cash inflows in the same period. Working capital signals are mixed: inventories are sizable at 11,519.86, which could tie up cash in a downcycle if turns slow. With non-operating expenses implied at roughly −344, interest and FX outflows could weigh on OCF, but this cannot be confirmed without cash flow statements. Given these limitations, we cannot validate earnings quality via cash conversion metrics this quarter.

Dividend Sustainability

Annual DPS and total dividends were not disclosed. The provided calculated payout ratio is 239.7%, which, if accurate, would be unsustainably above the <60% benchmark. However, absent OCF and FCF, we cannot test cash coverage of dividends. ROIC at 1.5% and net margins at 1.2% argue for caution on payout if near-term profitability does not improve. Policy-wise, management typically targets stable returns, but sustainability would require either earnings recovery or balance sheet usage; with D/E at 1.20x and an equity ratio of 44.4%, the balance sheet has some capacity, though drawing on it with sub-par ROIC would be value-dilutive over time.

Risk Assessment

Business Risks:

• Commodity steel price and spread volatility impacting margins
• Raw material price swings (iron ore, coking coal) affecting cost base
• Demand cyclicality in autos, construction, and capital goods
• Affiliate performance volatility—equity-method income at 66.8% of PBT
• Execution and cost overrun risk in decarbonization/capex programs

Financial Risks:

• Non-operating headwinds (interest/FX/derivatives) implied at about −344 impacting PBT
• Sub-par ROIC at 1.5% limiting internal funding capacity
• Potential liquidity pressure if inventories build and short-term debt (unreported) is high
• Dividend coverage uncertainty given high calculated payout ratio (239.7%) and unreported OCF

Key Concerns:

• High equity-method dependency increases earnings volatility
• Earnings compression: net income −37.2% YoY vs revenue −8.9% YoY
• Limited disclosure on cash flows and debt maturities constrains assessment of resilience

Investment Implications

Key Takeaways:

• Revenue down 8.9% YoY to 22,326.49 with net income down 37.2% to 266.76
• Operating margin ~2.1% and net margin 1.2% indicate tight profitability
• Equity-method income 228.19 accounts for 66.8% of PBT; non-operating net likely −344
• ROE 1.0% and ROIC 1.5% underscore low capital efficiency
• Equity ratio 44.4% and D/E 1.20x provide balance sheet support despite earnings softness
• Payout ratio (calc) 239.7% suggests dividend risk without cash flow backing

Metrics to Watch:

• Steel spreads (HRC prices) vs coking coal/iron ore costs
• Equity-method income trajectory by affiliate/segment
• Operating cash flow and capex once disclosed; FCF coverage of dividends
• Inventory levels and turns; receivables collection
• Interest expense/FX impacts and debt maturity profile
• ROIC progress from portfolio/cost actions

Relative Positioning: Within Japanese steel peers, the quarter places JFE in a cautious stance: profitability and ROIC lag target levels, equity-method dependency is elevated, and non-operating headwinds appear heavier. The balance sheet is comparatively sound (equity ratio 44.4%, D/E 1.20x), offering some resilience versus more levered profiles, but capital efficiency trails top-tier peers focused on higher-value product mix and stronger cash conversion.

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