LIXIL Corporation FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured revenue growth, operating income declined sharply and the quarterly net loss attributable to owners of the parent widened, highlighting deteriorating profitability as the key feature of this earnings announcement. Revenue was ¥3792.1B (+4.0% YoY), operating income was ¥17.6B (-74.3% YoY; operating margin of 0.5% versus 1.9% in the previous year), and the quarterly net loss attributable to owners of the parent was ¥35.1B (widening from a loss of ¥9.1B in the same period of the previous year). Revenue growth was driven by the expansion of the WaterTechnology Business, while higher SG&A expenses (+¥70.0B), the HousingTechnology Business falling into the red, and increased finance costs pressured profitability.

Factors Affecting Earnings

【Revenue】Revenue was ¥3792.1B, an increase of +4.0% YoY. By segment, WaterTechnology (55.3% of revenue) led the overall result with revenue growth of +8.8%, while Living (12.2% of revenue) also posted revenue growth of +2.0%. In contrast, HousingTechnology (32.5% of revenue) recorded a revenue decline of -2.6%, resulting in divergent performance among the segments.

【Profit and Loss】Gross profit was ¥1244.4B, remaining broadly flat year on year (-¥0.3B), while the gross margin declined 1.4pt to 32.8% from 34.2% in the previous year. SG&A expenses increased to ¥1227.5B (+¥70.0B YoY, +6.0%), causing the SG&A ratio to rise to 32.4% from 31.7%. As a result, operating income was ¥17.6B (YoY -74.3%), and the operating margin narrowed to 0.5% from 1.9% in the previous year. Furthermore, finance costs of ¥34.1B exceeded operating income, causing profit before tax to fall into a loss of ¥-8.8B, compared with profit before tax of ¥35.1B in the previous year. Following the recognition of income taxes and other taxes of ¥27.1B, the quarterly net loss attributable to owners of the parent widened to ¥35.1B, compared with a loss of ¥9.1B in the previous year. By segment, the primary cause of the decline in the Company-wide profit margin was HousingTechnology falling into an operating loss of ¥-3.9B, compared with profit of ¥+6.1B in the previous year (YoY -106.4%). In conclusion, the Company recorded revenue growth but lower profit.

Segment Analysis

WaterTechnology generated revenue of ¥2096.6B (55.3% of revenue, YoY +8.8%) and operating profit of ¥107.1B (YoY +0.8%, margin of 5.1%), maintaining stable profitability as the core segment. HousingTechnology generated revenue of ¥1233.6B (32.5% of revenue, YoY -2.6%) and recorded an operating loss of ¥-3.9B (YoY -106.4% from profit of ¥+6.1B in the previous year, margin of -0.3%), falling into the red and becoming the primary source of the deterioration in the Company-wide profit margin. Living generated revenue of ¥461.9B (12.2% of revenue, YoY +2.0%) and operating profit of ¥13.2B (YoY -38.8%, margin of 2.9%), with profit declining despite revenue growth. Across the segments, the structure is clear: deteriorating profitability in HousingTechnology is weighing on Company-wide performance despite the earnings strength of WaterTechnology.

Key Financial Indicators

【Profitability】The operating margin was 0.5%, down 1.4pt from 1.9% in the previous year, while the net profit margin attributable to owners of the parent was -0.9%, deteriorating further from -0.2% in the previous year. ROE was -0.5%. 【Cash Flow Quality】Operating cash flow (OCF) was ¥79.9B, down YoY -59.1% from ¥195.1B in the previous year. Although the Company maintained positive OCF compared with the quarterly net loss attributable to owners of the parent of ¥35.1B, deterioration in working capital, namely an increase in inventories and a decrease in trade payables, constrained cash generation. 【Investment Efficiency】Capital expenditures were ¥85.1B, up from ¥58.9B in the previous year. Investing cash flow was ¥-344.7B, and free cash flow was negative at ¥-264.8B. 【Financial Soundness】The equity ratio was 33.8%, down 1.5pt from 35.3% in the previous year. While bonds and borrowings increased to a total of ¥6428.7B, comprising current liabilities of ¥1907.3B and non-current liabilities of ¥4521.4B, cash and cash equivalents remained secured at ¥1330.8B.

Cash Flow Analysis

OCF remained positive at ¥79.9B, but declined YoY -59.1% from ¥195.1B in the previous year. OCF was positive despite the quarterly net loss attributable to owners of the parent of ¥35.1B because non-cash items, including depreciation and amortization expenses of ¥209.5B, contributed to cash flow. However, deterioration in working capital, including an increase in inventories of ¥-60.3B and a decrease in trade payables of ¥-94.7B, constrained cash-generating capacity. Investing cash flow was ¥-344.7B, primarily due to capital expenditures of ¥85.1B and the net increase in purchases of investment securities (purchases of ¥1209.9B and proceeds from sales and other transactions of ¥1009.9B). As a result, free cash flow was negative at ¥-264.8B, meaning that dividend payments of ¥129.3B could not be funded solely by OCF. Financing cash flow was positive at ¥+425.2B, covering the shortfall through financing from short-term borrowings (+¥404.0B), bond issuance (¥248.9B), and long-term borrowings (¥100.0B). Cash and cash equivalents increased to ¥1330.8B at period-end (+15.1% YoY).

Earnings Quality

The primary causes of the deterioration in profit and loss were structurally higher SG&A expenses, deteriorating segment profitability, and increased finance costs, while the impact of temporary factors such as extraordinary gains and losses was limited. In non-operating items, finance costs of ¥34.1B exceeded finance income of ¥11.9B, while equity in losses of affiliates of ¥4.2B also weighed on earnings. Other income of ¥19.8B and other expenses of ¥19.1B were nearly offset, resulting in a limited net impact. As income taxes and other taxes of ¥27.1B were recognized against a loss before tax of ¥-8.8B, the quarterly net loss attributable to owners of the parent widened to ¥35.1B, creating a significant divergence between pre-tax and final earnings. Consolidated quarterly comprehensive income was ¥11.8B (¥12.4B attributable to owners of the parent), representing a divergence of approximately ¥47.7B from the consolidated quarterly net loss of ¥35.9B. This was primarily due to an increase in other comprehensive income, including foreign currency translation adjustments for foreign operations of +¥79.4B. Although OCF remained positive, significant working-capital accrual movements, including increased inventories and decreased trade payables, warrant monitoring of the quality of cash generation.

Earnings Forecast and Guidance

The progress rate against the full-year forecast was 3792.1B/16000.0B, or 23.7%, for revenue, which is close to the simple progress benchmark of 25%. By contrast, operating income was 17.6B/375.0B, or only 4.7%. Quarterly net income attributable to owners of the parent was a loss of ¥35.1B in Q1, compared with the full-year forecast of ¥120.0B, resulting in negative progress. Although the full-year forecast appears to incorporate seasonality weighted toward the second half, as of Q1, higher SG&A expenses, the HousingTechnology loss, and increased finance costs are weighing on profit progress. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

Dividend payments during Q1 were ¥129.3B, broadly unchanged from ¥129.3B in the same period of the previous year, and the full-year dividend forecast remained unchanged at ¥90 per share. Based on the full-year forecast of ¥120.0B in net income attributable to owners of the parent, the payout ratio is approximately 215.6%, calculated using total dividends of approximately ¥258.8B, derived from the forecast dividend of ¥90 multiplied by the average number of shares outstanding during the period of 287,506 thousand shares. Share repurchases were minimal at ¥0.02B, making dividends the primary form of shareholder returns. Given the quarterly net loss attributable to owners of the parent of ¥35.1B and negative free cash flow of ¥-264.8B in Q1, the funding of dividends depends on cash on hand (¥1330.8B) and the future recovery of earnings and cash generation, representing a level that requires monitoring.

Risk Factors

1. Deterioration in segment profitability: HousingTechnology generated revenue of ¥1233.6B (YoY -2.6%) and recorded an operating loss of ¥-3.9B, falling into the red from profit of ¥+6.1B in the previous year. This was the primary factor pushing down the Company-wide operating margin of 0.5%.

2. Increase in interest burden: Finance costs of ¥34.1B exceeded operating income of ¥17.6B and represented a net burden of ¥22.2B even after offsetting finance income of ¥11.9B. Bonds and borrowings increased to a total balance of ¥6428.7B, comprising current liabilities of ¥1907.3B and non-current liabilities of ¥4521.4B. Changes in financing conditions therefore warrant close attention.

3. Deterioration in working capital: Inventories were ¥2693.6B, up from ¥2613.6B in the previous year, while trade payables were ¥2352.1B, down from ¥2447.9B in the previous year. In OCF, inventories and trade payables made negative contributions of ¥-60.3B and ¥-94.7B, respectively. This situation may affect cash-generation capacity and dependence on interest-bearing debt.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are significantly below the industry median, indicating that profitability is comparatively weak within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but remains within the IQR range.

Source: Company aggregation

Key Earnings Highlights

1. Negative operating leverage: While revenue increased +4.0%, SG&A expenses increased +6.0%, largely offsetting the improvement in gross profit. As a result, the operating margin narrowed from 1.9% in the previous year to 0.5%. Cost management amid a revenue growth trend will be a key focus going forward.

2. Widening profitability gap among segments: While WaterTechnology maintained a profit margin of 5.1%, HousingTechnology fell into a loss margin of -0.3%, exposing an imbalance in the earnings structure of the business portfolio.

3. Progress gap versus the full-year plan: The full-year progress rate for operating income was 4.7%, substantially below the revenue progress rate of 23.7%. The pace of earnings improvement in the second half will determine the extent to which the full-year plan is achieved.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,799–¥1,899 at cost of equity ±1%; ¥1,834–¥1,856 at ω±0.1.

Notes:

• Due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors, net income is substantially compressed relative to operating income (net income ÷ operating income 32%). This value reflects that compression at face value; if these factors are temporary, normalized earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, resulting in a timing difference from the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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