FURUKAWA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥97.64B
• Operating Income: ¥4.21B
• Net Income: ¥5.00B
• EPS: ¥145.09

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Solid top-line and operating momentum with margin expansion, but earnings quality weakened as cash generation turned negative and bottom-line fell year over year due to prior-year one-offs. Revenue rose 4.4% YoY to 976.35, while operating income increased 20.6% YoY to 42.08, indicating positive operating leverage. Gross profit was 145.29, yielding a gross margin of 14.9%, and SG&A was 103.20, supporting an operating margin of about 4.3%. Ordinary income surged 83.7% YoY to 62.97, helped by sizable net non-operating gains of 20.89 (31.20 income minus 10.31 expenses). Despite stronger operating and ordinary levels, net income declined 43.8% YoY to 49.05, implying last year’s bottom line contained significant one-off gains or tax effects. The effective tax rate was 29.8%, broadly in a normal range. EBITDA was 67.00, translating to a 6.9% margin, reflecting modest profitability uplift. Operating cash flow was -36.52, diverging sharply from net income of 49.05 (OCF/NI -0.74x), a clear earnings quality flag. Liquidity remained strong with a current ratio of 217.6% and a quick ratio of 169.9%, while leverage was moderate with D/E at 0.85x and interest coverage a healthy 15.4x. Total assets stood at 2,518.99 with equity of 1,364.43, implying financial leverage of 1.85x. ROE was 3.6% on a 5.0% net margin and low asset turnover of 0.388, indicating capital efficiency remains a challenge. ROIC was 1.7%, well below a typical 7–8% target, suggesting returns below likely cost of capital. Non-operating contributions were material this quarter (non-operating income ratio 63.6%), raising sustainability questions if those items normalize. Total comprehensive income of 91.50 exceeded net profit, implying favorable OCI movements (likely investments/FX). Forward-looking, sustained improvement requires converting earnings into cash, lifting ROIC via mix/efficiency, and reducing reliance on non-operating items.

Profitability Analysis

DuPont decomposition: ROE 3.6% = Net Profit Margin 5.0% × Asset Turnover 0.388 × Financial Leverage 1.85x. The most notable change driver versus last year appears to be margin improvement, as operating income grew 20.6% on 4.4% revenue growth, implying operating margin expansion (approx. +58 bps to about 4.3%). Ordinary income also benefited from net non-operating gains (+20.89), magnifying profit above the operating line. Asset turnover remains low at 0.388, pointing to a capital-heavy profile and/or inventory/receivable intensity, limiting ROE. Financial leverage at 1.85x is moderate and not the key driver of ROE change. Business reason: cost discipline and mix likely aided operating margin, while non-operating tailwinds (e.g., investment/FX) boosted ordinary income; however, bottom-line YoY declined due to prior-year one-time factors at the net level. Sustainability: operating margin gains are more defendable if tied to mix/efficiency, but the elevated non-operating contribution is inherently volatile. Watch for SG&A growth relative to revenue; current data show SG&A rising below gross profit growth pace, but lack of detail (e.g., salaries/bonuses) limits certainty. Overall, ROE remains constrained by low asset turnover and subpar ROIC despite margin improvement.

Growth Assessment

Top-line grew 4.4% YoY to 976.35, with operating income up 20.6% indicating positive operating leverage. Ordinary income jumped 83.7% YoY on stronger non-operating gains, but net income fell 43.8% YoY, signaling a tough comparison due to prior-year one-offs. EBITDA margin at 6.9% reflects incremental profitability, though still modest for heavy industry/metals. The non-operating income ratio of 63.6% underscores reliance on items outside core operations this quarter. Given OCF was negative while profits rose, the revenue and profit growth quality is mixed, likely impacted by working capital investment or timing. Near-term outlook hinges on normalizing non-operating items, improving cash conversion, and executing capex with adequate payback. Without segment detail, the persistence of growth in core businesses (e.g., machinery, materials) cannot be confirmed; caution is warranted on sustainability until cash flows align.

Financial Health

Liquidity is strong: current ratio 217.6% and quick ratio 169.9%, both well above healthy thresholds; no warning for Current Ratio < 1.0. Solvency appears sound with D/E at 0.85x and interest coverage of 15.41x, comfortably above risk thresholds; no D/E > 2.0 flag. Short-term funding risk is limited: short-term loans of 133.61 are covered by cash of 154.62 and supported by receivables of 297.26. Working capital is ample at 535.27, reducing maturity mismatch risk. Long-term loans total 419.36, implying some refinancing exposure but manageable given equity base and coverage. No off-balance sheet obligations are disclosed in the provided data. Equity of 1,364.43 supports a book value per share of roughly 4,105 JPY, indicating balance sheet resilience.

Cash Flow Quality

OCF/Net Income is -0.74x, below the 0.8 threshold and a clear quality concern. Indicatively, using reported capex (-22.90), pre-financing free cash flow would approximate -59 to -60 (OCF - capex), but investing CF details are not disclosed and actual FCF may differ. The mismatch between positive earnings and negative OCF suggests working capital build (e.g., higher receivables or inventories) and/or non-cash gains within non-operating income. Interest coverage is strong, so cash interest burden is not the primary driver. With financing CF at -25.12 including share repurchases (-51.46), the company likely drew on cash/other financing to fund both negative OCF and buybacks in the period. Sustained dividends and buybacks require OCF normalization; continued divergence would constrain distributions or raise leverage over time.

Dividend Sustainability

The calculated payout ratio is 52.0%, within a generally sustainable range (<60%), but OCF was negative this period, implying dividends were not covered by internally generated cash. FCF coverage cannot be precisely assessed due to missing investing CF details; an indicative OCF - capex lens implies negative FCF, pressuring distribution capacity unless offset by cash on hand or incremental borrowings. Share repurchases were sizable at -51.46, adding to cash demands. Policy outlook depends on management’s stance; with ROIC at 1.7% and cash conversion weak this half, maintaining both dividends and buybacks at current levels would likely require improved OCF in H2 or balance-sheet utilization. Absent visibility on full-year guidance and cash conversion, dividend safety is moderate but not assured.

Risk Assessment

Business Risks:

• Commodity price volatility affecting metals/materials margins (e.g., copper, zinc).
• Demand cyclicality in end-markets such as construction/mining machinery and infrastructure.
• Input cost inflation (energy, logistics) compressing gross margins if not passed through.
• Operational execution risk on capex projects given low ROIC (1.7%).
• Dependence on non-operating gains this period; normalization could reduce earnings.

Financial Risks:

• Negative operating cash flow despite profit, indicating cash conversion risk.
• Potential working capital swings (receivables/inventories) stressing cash in downturns.
• Refinancing risk on long-term loans (419.36) if credit conditions tighten.
• Shareholder returns (dividends/buybacks) outpacing internally generated cash in the period.
• Interest rate exposure on floating-rate debt segments.

Key Concerns:

• ROIC of 1.7% well below 5% warning threshold, implying value creation challenges.
• High non-operating income contribution (non-operating income ratio 63.6%) raises sustainability questions.
• OCF/NI at -0.74x flags earnings quality risk and potential working capital build.
• Net income down 43.8% YoY despite higher operating profit, pointing to volatile non-recurring compares.

Investment Implications

Key Takeaways:

• Healthy revenue growth (+4.4% YoY) with operating profit up +20.6% and margin expansion.
• Ordinary income boosted by non-operating gains; bottom-line declined YoY on tough comps.
• Cash conversion deteriorated (OCF negative), undermining earnings quality.
• Balance sheet and liquidity are solid (current ratio 218%, D/E 0.85x, interest cover 15.4x).
• Capital efficiency weak (ROE 3.6%, ROIC 1.7%), necessitating portfolio/mix or efficiency improvements.
• Shareholder returns included sizable buybacks, funded amid negative OCF.

Metrics to Watch:

• OCF/Net income and working capital trends (AR and inventories vs AP).
• Operating margin trajectory and SG&A discipline.
• Composition of non-operating income (FX, securities gains) and its recurrence.
• ROIC vs WACC by business segment if disclosed.
• Debt maturity profile and interest rate sensitivity.
• Dividend and buyback pace vs FCF generation in H2.

Relative Positioning: Versus domestic machinery/materials peers, the company shows solid liquidity and manageable leverage but lags on capital efficiency (ROE/ROIC) and cash conversion this half. Profitability improved at the operating level, yet elevated reliance on non-operating items and negative OCF leave it positioned below best-in-class operators on quality and returns.

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