Recruit Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.79T
• Operating Income: ¥313.52B
• Net Income: ¥248.33B
• EPS: ¥173.12

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

Recruit Holdings delivered a solid FY2026 Q2, with margin-driven earnings strength despite flattish topline. Revenue declined slightly by 0.3% year over year to 17,935.84, but operating income rose 16.2% to 3,135.25. Gross profit reached 10,644.50, translating to a gross margin of 59.3%, showcasing a resilient value-added mix. Operating margin expanded to roughly 17.5% (3,135.25/17,935.84), up meaningfully from an estimated ~15.0% in the prior year period. This implies approximately 249 basis points of operating margin expansion year over year. Net income increased 11.6% to 2,483.80, yielding a net margin of 13.8%. ROE was a robust 16.8%, supported by a net profit margin of 13.8%, asset turnover of 0.703x, and financial leverage of 1.72x. Cash flow quality was healthy: operating cash flow of 2,662.10 exceeded net income (OCF/NI of 1.07x), and free cash flow was strong at 2,049.32. The balance sheet remains conservative, with an equity ratio of 57.6% and negligible interest-bearing debt (long-term loans of just 8.89). Shareholder returns were outsized, with share repurchases of 4,283.04 and dividends of 175.91; financing cash outflows totaled -4,605.02. While non-operating items were a small drag (non-operating income ratio -1.5%) and equity-method income was negative (-38.02), underlying operating performance more than offset these headwinds. Effective tax rate was 23.1%, broadly consistent with prior norms for the group. ROIC at 16.3% indicates efficient capital deployment well above common cost-of-capital thresholds. The quarter’s key watch-out is limited disclosure on current liabilities and interest expense, which constrains granular liquidity and coverage assessments, though available indicators look strong. Looking forward, sustainability hinges on maintaining tighter SG&A efficiency and stable demand in core marketplaces and HR-related businesses amid a mixed macro backdrop. Overall, Recruit’s Q2 demonstrates solid operating leverage, strong cash generation, and ample capacity to sustain dividends and selective buybacks, even as non-operating headwinds and FX/affiliate volatility merit monitoring.

Profitability Analysis

ROE (16.8%) = Net Profit Margin (13.8%) × Asset Turnover (0.703x) × Financial Leverage (1.72x). The largest positive change was in the margin component: operating income grew 16.2% on a 0.3% revenue decline, lifting operating margin from an estimated ~15.0% to 17.5% (+249 bps). Business drivers likely include improved cost discipline within SG&A and favorable mix, as gross margin sits high at 59.3% and SG&A growth appears contained relative to operating profit growth (exact SG&A YoY not disclosed). Asset turnover of 0.703x looks stable given flat revenue and limited balance-sheet expansion; leverage (1.72x) remains moderate, implying ROE gains are not debt-driven. Non-operating components were a small drag (equity-method income -38.02, non-op ratio -1.5%), making the margin improvement principally operating in nature. The sustainability of higher margins will depend on maintaining SG&A efficiency and price/mix; absent evidence of large one-time gains, the improvement appears operationally driven rather than non-recurring. Watch for any re-acceleration in SG&A that outpaces revenue growth in subsequent quarters, which would pressure the margin leg of DuPont.

Growth Assessment

Top-line was essentially flat (-0.3% YoY), but profit growth was strong: operating income +16.2% and net income +11.6%. The profit uplift came from margin expansion rather than revenue growth, indicating positive operating leverage and cost control. EBITDA was 3,658.44 (20.4% margin), supporting the quality of the operating result. Equity-method income was negative (-38.02), so consolidated profit strength was not reliant on affiliates. The improvement appears recurring-operational in nature; no one-time gains are disclosed in non-operating lines. Outlook: sustaining profit growth will require either continued efficiency or a resumption of top-line growth; given macro sensitivity in HR and marketing solutions, revenue trajectory remains the key swing factor. FX and overseas exposure could influence revenue translation and cost base, creating volatility around the flat baseline.

Financial Health

Liquidity: Current ratio cannot be calculated due to unreported current liabilities; however, current assets are sizable at 12,595.76 and cash & equivalents total 5,350.95, suggesting ample near-term resources. No explicit warning on Current Ratio <1.0 can be made due to data gaps. Solvency: Equity ratio is 57.6% and long-term loans are only 8.89, indicating conservative leverage. The reported D/E of 0.72x appears to reference total liabilities/equity rather than interest-bearing debt; on an interest-bearing basis, leverage looks very low. Maturity mismatch risk is likely limited given low debt and high cash, but not fully assessable without current liabilities detail. Interest coverage is not calculable due to missing interest expense, though EBITDA provides a substantial cushion. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF/Net Income is 1.07x, indicating earnings are backed by cash generation. Free cash flow of 2,049.32 (after capex of -70.34) is strong and comfortably covers ordinary dividends (dividends paid -175.91). The company returned substantial capital via buybacks (-4,283.04), exceeding FCF and funded by cash balances/other financing flows (financing CF -4,605.02). Working capital specifics are not disclosed, limiting analysis of potential timing effects; however, the positive OCF/NI ratio suggests no near-term red flags. No signs of aggressive working capital manipulation are evident from the limited data.

Dividend Sustainability

The calculated payout ratio is low at 15.1%, and FCF coverage is strong at 5.46x, indicating high sustainability under current conditions. Annual DPS is unreported, but dividends paid (-175.91) are well within FCF capacity. With robust ROE (16.8%) and ROIC (16.3%), the company has flexibility to sustain or modestly increase shareholder returns, subject to reinvestment needs. The sizable buybacks in the quarter far exceeded FCF; while affordable given cash balances, that pace is discretionary and not implied as a structural run-rate commitment.

Risk Assessment

Business Risks:

• Demand cyclicality in HR-related markets and advertising/marketing solutions impacting revenue growth.
• Execution risk in maintaining SG&A efficiency to preserve expanded margins.
• Goodwill concentration (5,191.80) raises medium-term impairment risk if business performance deteriorates.
• Affiliate volatility: negative equity-method income (-38.02) indicates potential drag from investees.

Financial Risks:

• Large share repurchases (-4,283.04) outpacing FCF could reduce cash buffers if continued.
• Incomplete visibility on current liabilities and interest expense constrains precise liquidity and coverage assessment.
• FX risk given international exposure; translation and transaction effects could impact margins and reported growth.

Key Concerns:

• Reliance on margin expansion to drive profit amid flat revenue; reversal could compress earnings.
• Non-operating drag (-1.5% ratio) could persist if affiliates underperform.
• Potential for macro slowdown to weaken hiring activity and ad demand.

Investment Implications

Key Takeaways:

• Strong margin-driven earnings: operating income +16.2% on -0.3% revenue.
• Operating margin expanded ~249 bps to ~17.5%, with robust EBITDA margin of 20.4%.
• High-quality cash flow: OCF/NI 1.07x; FCF 2,049.32.
• Balance sheet conservative: equity ratio 57.6%, negligible interest-bearing debt.
• ROE 16.8% and ROIC 16.3% indicate efficient capital deployment.
• Shareholder returns elevated via buybacks (-4,283.04) and dividends (-175.91).
• Non-operating items and equity-method income were modest drags but did not derail performance.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of revenue.
• Revenue growth reacceleration versus macro trends in HR and marketing solutions.
• OCF/NI ratio and working capital movements (receivables, payables).
• Equity-method income trend and any affiliate-related impairments.
• FX impacts on revenue and margins.
• Goodwill impairment indicators.

Relative Positioning: Within Japanese internet/services peers, Recruit combines above-peer ROE/ROIC with low financial leverage and strong cash generation; earnings quality appears high, though topline sensitivity to macro hiring cycles and FX remains a differentiator versus more subscription-heavy models.

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