AMADA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥184.28B
• Operating Income: ¥15.30B
• Net Income: ¥10.45B
• EPS: ¥32.50

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

Amada’s FY2026 Q2 consolidated results under IFRS were weaker on profit despite flat sales, with clear margin compression and subdued capital efficiency. Revenue was 1,842.8 (100M JPY), down 0.1% YoY, while operating income fell 33.9% to 153.05, and net income declined 31.3% to 103.85. Operating margin decreased to 8.3% from roughly 12.6% a year ago, a compression of about 425 bps, driven by a higher cost base and elevated SG&A intensity. Net margin slipped to 5.6% from approximately 8.2% YoY, a contraction of around 256 bps. Gross profit margin was 41.5%, solid on an absolute basis, but could not offset SG&A of 618.7 (33.6% of sales). EBITDA was 256.74 with a 13.9% margin, highlighting some cushion from depreciation (103.69), but not enough to prevent significant operating deleverage. Earnings quality was strong this quarter: operating cash flow of 216.74 exceeded net income (OCF/NI = 2.09x), though free cash flow was negative at -46.31 due to sizable investing outflows. The balance sheet remains conservative with equity ratio 70.7% and D/E at 0.40x; cash and equivalents of 1,333.44 comfortably exceed short-term loans of 739.31. Asset efficiency remains a headwind: asset turnover is 0.25x and ROIC is 1.7%, well below a 5% warning threshold. Inventory at 1,645.3 and receivables at 1,357.6 are high relative to half-year revenue, tying up capital and weighing on returns. Dividend sustainability looks stretched in the near term, with a calculated payout ratio of 195.9% and FCF coverage of -0.23x, especially alongside share repurchases of 77.16. FX exposure and cyclical demand in machine tools likely contributed to the margin pressure, though detailed segment/order data were not disclosed. Equity-method income (1.27) is immaterial to overall earnings for Amada’s business model. Looking forward, recovery hinges on restoring operating margin via price-cost management and tighter SG&A control while normalizing working capital to improve ROIC. With robust liquidity and moderate leverage, Amada has financial flexibility, but the immediate focus should be on margin restoration and capital efficiency improvement to support dividends and buybacks sustainably.

Profitability Analysis

ROE (2.0%) decomposes into Net Profit Margin (5.6%) × Asset Turnover (0.250) × Financial Leverage (1.40x). The principal driver of the YoY decline is the Net Profit Margin, which fell from roughly 8.2% to 5.6% (about -256 bps), reflecting operating margin compression from about 12.6% to 8.3% (-425 bps). Asset turnover remains low at 0.25x, indicative of a working-capital-heavy model (large inventories and receivables) and soft throughput in a flat-demand environment; there is no evidence of improvement. Financial leverage is stable and conservative at 1.40x, contributing little to ROE change. Business drivers of margin compression likely include weaker pricing power in certain product categories, unfavorable mix, and higher fixed cost absorption amid flat sales; SG&A at 33.6% of revenue suggests limited scalability this quarter. This looks partly cyclical and partly cost-structure related; absent a demand upturn or cost actions, full normalization may not be immediate. Watch for any sign that SG&A growth is running faster than revenue growth; while YoY SG&A growth isn’t disclosed, the deleverage suggests opex did not flex down in line with volume.

Growth Assessment

Top-line was essentially flat (-0.1% YoY), implying stable shipments but limited new demand momentum. Operating income dropped 33.9% YoY, signaling significant operating deleverage and/or mix deterioration. EBITDA margin of 13.9% provides some buffer, but the 8.3% operating margin is well below last year's level, indicating cost pressure. Equity-method income (1.27) is negligible and does not support earnings growth. With inventories (1,645.3) and receivables (1,357.6) elevated relative to half-year sales, future growth will require careful working capital management to avoid further pressure on ROIC. Near-term outlook depends on order intake, backlog conversion, and pricing discipline; data were not disclosed, limiting visibility. FX (weak yen) can support overseas revenue translation but may raise imported component costs; net effect depends on hedging and pricing, which were not provided. Without clear signs of demand reacceleration or cost realignment, earnings growth near term appears constrained, with a focus on margin stabilization.

Financial Health

Liquidity is broadly solid, backed by cash and equivalents of 1,333.44 and a strong equity ratio of 70.7%. Current ratio cannot be calculated due to missing current liabilities, but short-term loans are 739.31, which are covered by cash on hand; no explicit warning on Current Ratio < 1.0 is triggered. Debt-to-equity is 0.40x, conservative for an industrial manufacturer. Interest-bearing debt by component is partially disclosed (short-term loans), and long-term loans are unreported; however, leverage is clearly moderate. There is no evidence of maturity mismatch: substantial current assets (4,648.17) versus disclosed short-term loans (739.31) implies comfortable near-term coverage. Goodwill of 408.52 and intangibles of 119.29 introduce potential impairment risk in a downturn. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income is 2.09x, indicating cash earnings exceed accounting profits. Free cash flow is negative (-46.31), as investing outflows (-263.05) exceeded OCF, driven by items beyond routine capex (capex only -33.54; the remainder likely M&A, financial investments, or long-term projects). Dividend payments (-99.45) and buybacks (-77.16) were not covered by FCF this period, relying on financing inflows (313.28). Working capital dynamics are not broken out, but elevated inventories and receivables suggest prior builds; the positive OCF despite lower profits may reflect stabilization or improved collections this quarter. No clear signs of working capital manipulation can be inferred from available data, but monitoring inventory turns and DSO is important.

Dividend Sustainability

The calculated payout ratio is 195.9%, indicating distributions are well above current earnings run-rate. FCF coverage of dividends is -0.23x, implying dividends were not funded by internally generated free cash this period. With share repurchases of 77.16 also executed, total shareholder returns exceeded FCF, necessitating financing or balance sheet draw. While the balance sheet is strong (equity ratio 70.7%, cash 1,333.44), sustaining this payout level depends on a recovery in operating margin and improved capital efficiency. Absent a near-term profit and FCF upturn, policy risk includes potential moderation of buybacks before dividends, consistent with typical Japanese capital allocation discipline.

Risk Assessment

Business Risks:

• Cyclical demand in machine tools and fabrication equipment leading to margin volatility
• Pricing pressure and unfavorable product mix reducing operating margin
• Execution risk in cost control with SG&A at 33.6% of revenue
• Potential impairment risk given goodwill of 408.52 amid profit headwinds
• Supply chain and component cost inflation impacting gross-to-operating margin conversion

Financial Risks:

• Low ROIC at 1.7% materially below cost of capital
• Negative FCF despite strong OCF due to elevated investing outflows
• Dividend and buyback outflows exceeding FCF, creating reliance on financing
• Working capital intensity (high inventories and receivables) depressing asset turnover

Key Concerns:

• Operating margin compression (~425 bps YoY) and its duration
• Sustainability of shareholder returns with payout ratio at ~196%
• Visibility on order intake/backlog not disclosed, limiting demand outlook assessment
• FX volatility affecting export competitiveness and cost of imported parts

Investment Implications

Key Takeaways:

• Profit underperformance driven by significant operating margin compression despite flat revenue
• Earnings quality is solid (OCF > NI), but negative FCF reflects non-capex investing outflows
• Capital efficiency is weak: ROIC 1.7% and asset turnover 0.25x
• Balance sheet strength (equity ratio 70.7%, D/E 0.40x, ample cash) provides flexibility
• Dividend and buybacks exceeded FCF; near-term distributions hinge on profit and FCF recovery

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Order intake, book-to-bill, and backlog conversion (not disclosed)
• Inventory turns and DSO to improve asset turnover
• FX exposure/hedging and price-cost pass-through
• ROIC progress toward >5% and then 7–8% medium-term

Relative Positioning: Within Japan’s machine tool/fabrication peer set, Amada’s balance sheet is stronger than many (high equity ratio, moderate D/E), but current profitability and capital efficiency lag due to margin compression and high working capital. Recovery in operating margin and working capital normalization will be key to closing the gap.

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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