AMADA (6113) FY2026 Q3 Earnings Report

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Executive Summary

The Company reported higher revenue but lower earnings due to deteriorating margins, with the key issue being that growth has not translated into improved profitability. Revenue was ¥2,949.8B (+7.3% YoY), Operating Income was ¥265.1B (△15.4%), and Net Income attributable to owners of the parent was ¥183.0B (△10.7%). Against a gross profit margin of 41.1%, the SG&A ratio increased to 32.4%, while the Operating Income margin declined by approximately 2.4pt from the previous year to 9.0%, indicating that expenses growing faster than revenue pressured earnings.

Factors Affecting Performance

【Revenue】Revenue increased by +7.3% YoY to ¥2,949.8B. The acquisition of subsidiaries for ¥498.7B, involving the consolidation of 13 new companies, may have contributed to revenue expansion, with both growth in existing businesses and M&A considered to be drivers of the increase.

【Profit and Loss】Operating Income was ¥265.1B (△15.4% YoY), and the Operating Income margin declined by approximately 2.4pt from the previous year to 9.0%. The primary factor was that both the cost of sales ratio and the SG&A ratio increased, preventing higher revenue from translating into earnings growth. Financial income of ¥32.5B exceeded financial expenses of ¥27.9B, resulting in Profit Before Tax of ¥271.7B, which exceeded Operating Income; however, Net Income remained at ¥183.0B (△10.7% YoY). In conclusion, the current period resulted in higher revenue but lower earnings.

Key Financial Indicators

【Profitability】The Operating Income margin was 9.0% and the Net Income margin was 6.2%; both declined from the same period of the previous year, with the Operating Income margin decreasing by approximately 2.4pt. The deterioration in profitability despite higher revenue is a notable feature. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥296.9B, approximately 1.6 times Net Income of ¥183.0B, indicating strong cash backing for earnings. 【Investment Efficiency】ROE was 3.4% and the Equity Ratio was 70.5%, both high levels, indicating a structure in which capital safety takes precedence over capital efficiency. 【Financial Soundness】Cash and cash equivalents were ¥1,303.8B, substantially exceeding short-term borrowings of ¥743.4B. Together with the Equity Ratio of 70.5%, the Company’s financial foundation is solid. Meanwhile, inventories increased to ¥1,715.3B, indicating that working capital accumulation is affecting cash efficiency.

Cash Flow Analysis

Operating Cash Flow (OCF) increased by +13.7% YoY to ¥296.9B, exceeding Net Income of ¥183.0B, indicating good earnings quality. However, from the subtotal of OCF of ¥449.0B, increases in inventories of ¥138.8B, decreases in accounts payable of ¥76.8B, and income taxes paid of ¥158.6B, among other items, were deducted, indicating that the accumulation of working capital is constraining cash generation. Investing Cash Flow was △¥216.7B, including capital expenditures of ¥38.9B and acquisitions of subsidiaries, leaving Free Cash Flow at only ¥80.2B. Financing Cash Flow was positive at ¥132.5B; this reflected short-term borrowings and other financing exceeding cash outflows of ¥197.8B for dividend payments and ¥148.7B for share repurchases. The combined amount of dividends and share repurchases substantially exceeded Free Cash Flow, indicating capital allocation supported by cash balances and borrowing capacity.

Earnings Quality

Profit Before Tax of ¥271.7B exceeded Operating Income of ¥265.1B by ¥6.6B, primarily because financial income of ¥32.5B exceeded financial expenses of ¥27.9B; this can be considered within the range of recurring financial gains and losses. No significant temporary factors comparable to extraordinary gains or losses were identified among non-operating items, and Operating Income remains the core source of earnings. Since OCF of ¥296.9B exceeded Net Income of ¥183.0B, there are few signs that accounting earnings are disproportionately attributable to non-cash recognition, and earnings quality is generally good from an accruals perspective. However, if inventories continue to increase, earnings quality may be affected in the future through the recognition of valuation losses or delays in cash recovery.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥4,400.0B and Operating Income of ¥460.0B (△6.3% YoY), while the Q3 cumulative progress rates were 67.0% for revenue and 57.6% for Operating Income. These progress rates were below the usual benchmark of 75%, requiring Q4 revenue of ¥1,450.2B and Operating Income of ¥194.9B. This requires a margin of approximately 13.4%, substantially above the Q3 cumulative Operating Income margin of 9.0%; therefore, achievement of the full-year plan presupposes a marked recovery in profitability.

Shareholder Returns

The Q2 dividend was ¥31.00 per share, and the Company’s full-year dividend forecast is ¥62.00. Based on forecast EPS of ¥102.27, the Payout Ratio is approximately 60.6%, which is within a sustainable range relative to earnings when dividends are considered alone. Meanwhile, including share repurchases of ¥148.7B, cumulative Q3 total shareholder returns reached ¥346.5B, resulting in a Total Return Ratio of approximately 189% relative to Net Income attributable to owners of the parent of ¥183.0B, substantially exceeding the earnings level. The Payout Ratio and Total Return Ratio are clearly at different levels, with cash and cash equivalents of ¥1,303.8B and the high Equity Ratio supporting the funding of current-period shareholder returns.

Risk Factors

1. Deterioration in working capital efficiency: Inventories increased to ¥1,715.3B, while accounts payable declined. Inventory accumulation and a lengthening collection cycle could lead to future valuation losses or lower cash conversion efficiency.

2. Short-term concentration of interest-bearing debt: Interest-bearing debt is concentrated in the short term relative to short-term borrowings of ¥743.4B, resulting in relatively high sensitivity to refinancing terms and changes in the financial environment. Cash of ¥1,303.8B provides a buffer.

3. Gap between capital returns and cash generation: The combined ¥346.5B of dividends and share repurchases substantially exceeded Free Cash Flow of ¥80.2B, indicating that current-period cash generation alone was insufficient to fund shareholder returns.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is slightly above the industry median, while the Net Income margin remains almost at the same level.

Growth and Capital Efficiency

The revenue growth rate is substantially above the industry median and is near the upper end of the IQR.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. While revenue growth exceeded the industry median, the Operating Income margin declined by approximately 2.4pt from the previous year, highlighting that higher revenue did not directly translate into earnings growth.

2. OCF exceeded Net Income, confirming strong cash backing for earnings; however, working capital accumulation due to increased inventories is affecting cash efficiency.

3. Significant improvement in the Q4 Operating Income margin is required to achieve the full-year plan, making the progress rate of 57.6% for Operating Income a key focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,474–¥1,558 at Cost of Equity ±1%, and ¥1,509–¥1,518 at ω ±0.1.

Notes:

• 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 (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmark is 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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AI Financial Analysis

Executive Summary

Amada’s FY2026 Q3 performance showed solid top-line growth but a material deterioration in operating profitability, alongside an acquisition-led expansion in the balance sheet. Revenue increased 7.3% year on year to ¥294.98bn. Gross profit rose only 1.1% to ¥121.37bn, substantially trailing sales growth. The gross margin consequently contracted by approximately 254bp to 41.1% from 43.7% a year earlier. SG&A increased 5.6% to ¥95.47bn, slower than revenue growth but far faster than gross profit growth. Operating income declined 15.4% to ¥26.51bn. The operating margin fell by approximately 241bp to 9.0% from 11.4% in the prior-year period. Profit attributable to owners declined 10.7% to ¥18.19bn, and basic EPS declined to ¥57.23 from ¥61.68. The decline in earnings therefore reflects gross-margin pressure rather than excessive SG&A growth. Finance income exceeded finance costs by ¥0.46bn, providing only a limited offset to the operational decline. The effective tax rate improved to 32.6% from approximately 36.6% in the prior-year period, moderating the decline in net income relative to operating income. Cash conversion was favorable, with operating cash flow of ¥29.69bn equivalent to 1.63x net income. However, working capital remained strategically important: inventory absorbed ¥13.89bn of cash and inventory on the balance sheet increased 30.5% year on year to ¥171.53bn. The company also completed acquisitions of subsidiaries totaling ¥49.87bn, consolidating 13 subsidiaries and increasing goodwill by ¥34.28bn to ¥41.03bn. This acquisition program was financed in part by a sharp increase in short-term loans to ¥74.34bn, although the overall balance sheet remains equity-rich with a 70.5% equity ratio. Full-year guidance requires a pronounced Q4 recovery, particularly in operating margin, making order execution, inventory normalization, and post-acquisition integration central to the FY2026 outlook.

Profitability Analysis

The reported annualized ROE is 4.6%, below the 8% level generally viewed as a minimum acceptable return threshold. The three-factor DuPont decomposition is net profit margin of 6.2%, annualized asset turnover of 0.527x, and financial leverage of 1.41x. The principal constraint on return on equity is modest profitability and asset utilization rather than insufficient leverage. Net margin remained within a reasonable 5-10% range but declined as operating income fell faster than sales. The largest adverse change was margin compression: gross margin declined about 254bp and operating margin declined about 241bp year on year. Revenue growth of 7.3% did not translate into earnings growth because cost of sales increased 12.2%, substantially faster than sales. SG&A grew 5.6%, below revenue growth, indicating that fixed-cost discipline was not the primary source of the earnings shortfall. In the five-factor DuPont view, the tax burden was 0.669, while the interest burden was 1.025 because net finance income was positive. Thus, financing costs are not currently impairing profitability. Annualized ROA, calculated using annualized Q3 profit attributable to owners and average total assets, is approximately 3.5%, indicating low returns relative to the expanded asset base. The annualized asset turnover of 0.527x is restrained by the sizeable working-capital base and acquisition-related asset expansion. The quality of reported operating profit is supported by the absence of a material reliance on finance income or equity-method income; equity-method investment income was only ¥0.21bn. Profitability recovery depends on restoring gross-margin conversion and extracting operating synergies from the newly consolidated businesses.

Growth Assessment

Revenue growth of 7.3% demonstrates continued demand expansion, but the earnings profile indicates that this growth has been lower quality from a margin perspective. Gross profit increased only ¥1.32bn year on year despite a ¥20.15bn increase in revenue. Cost of sales grew by approximately ¥18.83bn, or 12.2%, which exceeded revenue growth by roughly 490bp. This gap suggests unfavorable product mix, input-cost pressure, pricing lag, production inefficiency, or a combination of these factors. The acquisition of 13 subsidiaries is a meaningful contributor to the enlarged operating platform and creates potential for revenue diversification and cross-selling. Acquisition cash outflow of ¥49.87bn represented approximately 16.9% of Q3 cumulative revenue, making integration execution a significant determinant of future returns. Goodwill rose 508.0% year on year, consistent with acquisition-driven growth rather than purely organic expansion. Full-year revenue guidance is ¥440.0bn, implying a Q3 progress rate of 67.0% versus a standard 75% seasonal progress rate. Full-year operating income guidance of ¥46.0bn implies Q3 progress of 57.6%, 17.4 percentage points below the standard 75% level. Full-year profit attributable to owners guidance of ¥32.0bn implies Q3 progress of 56.8%, also materially below the standard pace. Meeting guidance requires approximately ¥145.0bn of Q4 revenue and ¥19.49bn of Q4 operating income. That implied Q4 operating margin is about 13.4%, well above the 9.0% cumulative Q3 margin. The guidance therefore embeds a substantial seasonal recovery in profitability, making margin normalization more important than sales growth alone. The two-period consistency score of 2/10 also supports a cautious view of near-term earnings consistency.

Financial Health

Financial health remains broadly sound because total equity of ¥530.55bn funds 70.5% of total assets. Total liabilities were ¥215.12bn, equivalent to 28.8% of assets. The reported debt-to-equity ratio was 0.41x and debt-to-capital was 12.3%, both indicating conservative balance-sheet leverage on a total-capital basis. Current assets of ¥471.03bn exceeded estimated current liabilities of ¥190.91bn by a wide margin, producing an estimated current ratio of approximately 2.47x. Excluding inventories, the estimated quick ratio was approximately 1.57x, also supportive of liquidity. Cash and cash equivalents of ¥130.38bn covered short-term loans of ¥74.34bn by approximately 1.75x. Accordingly, the reported liquidity-stress alert stating cash-to-short-term-debt below 0.5x is not supported by the supplied balance-sheet amounts; nevertheless, the sharp rise in short-term borrowing warrants monitoring. The refinancing-risk alert is relevant because 100% of interest-bearing debt is classified as short term, compared with the stated 40% caution threshold. The root cause is the increase in short-term loans from ¥10.95bn to ¥74.34bn, a 578.6% year-on-year increase. This maturity structure increases dependence on bank funding renewal and exposes the company to rate and liquidity conditions even though current liquidity coverage is currently strong. The financial impact is manageable at present given the cash balance, low debt-to-capital ratio, and positive net finance income, but the short-term funding profile should normalize as acquisition financing is refinanced or repaid. Goodwill of ¥41.03bn equals only 7.7% of equity and 5.5% of assets, well below levels that would indicate balance-sheet dependence on acquisition values. Net defined-benefit liabilities of ¥6.14bn and other financial liabilities are modest relative to equity. No material off-balance-sheet obligations are identified in the supplied financial data.

Notable B/S Changes

Short-term loans: +¥63.38bn (+578.6%) to ¥74.34bn - acquisition-related funding and a 100% short-term debt maturity profile increase refinancing dependence, despite cash coverage of approximately 1.75x. Goodwill: +¥34.28bn (+508.0%) to ¥41.03bn - acquisition consolidation effect from 13 newly consolidated subsidiaries; goodwill remains moderate at 7.7% of equity but integration performance should be monitored. Treasury stock: -¥14.87bn (-147.2%) to -¥24.98bn - reflects ¥14.87bn of share repurchases, increasing capital returns while reducing retained financial flexibility. Inventories: +¥40.10bn (+30.5%) to ¥171.53bn - inventory growth substantially exceeded revenue growth and is consistent with the 270-day inventory alert, raising cash-conversion and inventory-quality risk.

Cash Flow Quality

Cash-flow quality was favorable in FY2026 Q3, with operating cash flow of ¥29.69bn exceeding net income of ¥18.19bn by 1.63x. This exceeds the 1.0x benchmark for strong cash earnings conversion and does not trigger the concern threshold of 0.8x. The accruals ratio was negative 1.5%, which is consistent with conservative cash realization rather than aggressive accrual-based earnings recognition. Receivables released ¥19.12bn of cash during the period, supporting operating cash flow. However, inventory absorbed ¥13.89bn of cash and trade payables declined by ¥7.68bn, partly offsetting the receivables benefit. The high receivable-days alert of 131 days is material: it signals a long collection cycle relative to the 60-day warning benchmark, despite the favorable period cash movement. The high inventory-days alert of 270 days is also material and substantially exceeds both the 90-day general warning level and the 60-day manufacturing benchmark. The root cause is the ¥171.53bn inventory balance, which rose 30.5% year on year and outpaced revenue growth. The long cash-conversion-cycle alert of 329 days reflects the combined effect of slow collections and elevated inventory holdings. For a machine-tool manufacturer, extended order lead times, customer acceptance processes, overseas distribution requirements, and work-in-process can contribute to a longer cycle, but 329 days still represents significant capital lock-up. The investment implication is that inventory quality, order cancellation risk, and eventual conversion into revenue and cash require close scrutiny. Reported free cash flow was ¥8.02bn, positive but insufficient to fully cover dividends paid of ¥19.78bn. Capital expenditures were only ¥3.89bn, while acquisition spending of ¥49.87bn was the major investment cash use. Financing cash flow was positive ¥13.25bn, reflecting acquisition-related funding needs despite shareholder distributions. Cash flow quality of recurring earnings is sound, but free-cash-flow coverage of distributions is constrained by the acquisition program and working-capital intensity.

Dividend Sustainability

The indicated dividend per share is ¥62.0 for FY2026, comprising an interim dividend of ¥31.0 and an implied year-end dividend of ¥31.0. Based on the full-year EPS forecast of ¥102.27, the prospective dividend payout ratio is approximately 60.6%, near the 60% sustainability benchmark. The calculated Q3 cumulative payout ratio of 55.9% is within the stated sustainable range for dividends alone. Dividends paid in the first nine months totaled ¥19.78bn, exceeding reported free cash flow of ¥8.02bn by approximately 2.47x. The stated FCF coverage of 0.79x likewise indicates that free cash flow did not fully fund the dividend commitment. Share repurchases added ¥14.87bn, bringing cumulative shareholder cash returns to ¥34.65bn. The resulting total return ratio, calculated as dividends plus buybacks divided by profit attributable to owners, was approximately 190.5%, well above the 100% caution level. This distribution level was supported by the company’s substantial equity base and cash resources, but it is not fully covered by current-period free cash flow. Dividend sustainability is therefore acceptable from a balance-sheet perspective but depends on recovery in operating earnings, inventory conversion, and moderation of acquisition-related cash demands. The key policy trade-off is between returning capital to shareholders and preserving financial flexibility for integration, working capital, and refinancing of short-term debt.

Risk Assessment

Business risks include Margin recovery risk: revenue increased 7.3% while cost of sales increased 12.2%, compressing gross margin by about 254bp and operating margin by about 241bp., Manufacturing working-capital risk: DSO of 131 days, DIO of 270 days, and a 329-day cash conversion cycle indicate a large amount of capital tied up in receivables and inventory., Inventory quality and obsolescence risk: inventories increased 30.5% year on year to ¥171.53bn, increasing exposure to demand changes, product mix shifts, and delayed customer acceptance., M&A integration risk: acquisition spending of ¥49.87bn, equivalent to 16.9% of Q3 cumulative revenue, and consolidation of 13 subsidiaries create execution requirements for synergies, operational controls, and customer retention., Machine-tool cycle risk: capital-equipment demand is sensitive to manufacturing investment cycles, export demand, customer capital-expenditure budgets, and production-sector conditions..

Financial risks include Refinancing risk: the 100% short-term debt ratio is above the 40% alert threshold. Short-term loans increased ¥63.38bn year on year to ¥74.34bn, increasing dependence on short-term funding markets and banking relationships., Liquidity monitoring risk: while cash of ¥130.38bn covers short-term loans by about 1.75x and estimated liquidity ratios are healthy, acquisition spending and shareholder returns reduce the margin for funding disruption., Capital-efficiency risk: annualized ROE of 4.6% and the ROIC alert of 3.9% are below 5%, indicating that the enlarged capital base is not yet producing adequate returns., Goodwill retention risk: goodwill increased ¥34.28bn to ¥41.03bn following acquisitions. The present goodwill-to-equity ratio of 7.7% is low, but future impairment risk depends on integration performance and acquired-business profitability..

Key concerns include The ROIC alert of 3.9% reflects returns below the 5% warning threshold. The likely drivers are lower operating margin and a larger invested-capital base following acquisitions; unless margins recover and synergies are realized, value creation will remain constrained., The high DSO alert of 131 days requires attention because slower collection increases credit exposure and working-capital financing needs. The current-period receivables cash inflow is positive, but the elevated day count remains a structural efficiency concern., The high DIO alerts of 270 days relative to both 90-day and 60-day benchmarks point to excess inventory intensity. This is particularly important for a manufacturer because inventory can mask weaker end demand and may require discounting or provisions if order patterns deteriorate., The 329-day cash conversion cycle is the combined working-capital concern with the greatest potential impact on cash generation. Improvement in inventory turnover and customer collections would release cash and reduce reliance on short-term borrowing., Guidance execution risk is elevated: Q3 operating-income progress is only 57.6% of the full-year forecast, requiring a Q4 operating margin of about 13.4% versus 9.0% year-to-date..

Investment Implications

Key takeaways include Top-line growth remains positive, but FY2026 Q3 earnings demonstrate negative operating leverage at the gross-profit level rather than an SG&A discipline problem., Operating cash flow conversion is strong at 1.63x net income, supported by a negative 1.5% accruals ratio., Working-capital intensity is the principal cash-flow and operational risk, with DSO of 131 days, DIO of 270 days, and a 329-day cash conversion cycle., The acquisition program materially increased goodwill and short-term debt, but goodwill concentration and overall leverage remain modest relative to equity., Full-year guidance assumes a significant fourth-quarter margin recovery and should be evaluated against actual order execution and inventory reduction..

Metrics to watch include Quarterly gross margin and operating margin versus the FY2026 Q3 levels of 41.1% and 9.0%, Inventory balance, inventory days, and evidence of inventory write-downs or discounting, Receivable days, customer collections, and bad-debt experience, Short-term loan balance, cash-to-short-term-debt coverage, and refinancing actions, Acquired-subsidiary revenue, profitability, integration costs, and goodwill impairment indicators, Progress toward full-year guidance, especially the implied Q4 operating margin of approximately 13.4%, Free cash flow coverage of dividends and the total return ratio.

Regarding relative positioning, Amada combines a strong equity-funded balance sheet and good operating cash conversion with returns on capital that are presently below preferred levels. Its 9.0% operating margin remains within a generally acceptable industrial range, but the year-on-year compression, unusually long working-capital cycle, and acquisition-led increase in short-term funding distinguish the current period as an execution-and-integration phase rather than a clean earnings expansion phase.