YAMAZAKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.27B
• Operating Income: ¥-90M
• Net Income: ¥-118M
• EPS: ¥-26.70

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: FY2026 Q2 was weak, marked by a sharp topline contraction and a swing to losses, partially cushioned by positive operating cash flow. Revenue fell to 12.66 (−19.1% YoY), compressing scale and leaving gross profit at 1.56, while SG&A of 2.47 exceeded gross profit, resulting in an operating loss of −0.90. Ordinary income deteriorated to −0.99 (−94.1% YoY), and net income was −1.18 (−98.3% YoY), implying a net margin of −9.3%. Gross margin printed at 12.3%, while operating margin was −7.1% and EBITDA margin −2.5%, all indicative of negative operating leverage. Interest expense of 0.18 led to an interest coverage ratio of −4.99x, highlighting debt service pressure. Cash generation was a relative bright spot: operating CF was positive at 1.43, exceeding net loss (OCF/NI = −1.21x), suggesting working capital release and non-cash D&A (0.58) drove cash resilience. Free cash flow appears positive at roughly 1.03 (OCF 1.43 minus capex 0.40), though investing CF details are otherwise unreported. Liquidity is thin but above the warning threshold with a current ratio of 107.8%, supported by cash and deposits of 7.19; however, short-term loans are sizable at 13.70, posing near-term refinancing risk. Leverage is elevated with D/E of 1.93x and financial leverage of 2.93x, amplifying earnings volatility and depressing ROE to −9.8%. ROIC of −4.2% is below the 5% warning line, underscoring subpar capital efficiency in the period. Without prior-period margin disclosure, the precise basis-point compression is not quantifiable, but the swing to operating loss signals significant margin deterioration. Earnings quality flags persist: negative earnings with positive OCF suggests transitory cash support from working capital rather than core profitability. Forward-looking, restoring scale and rebuilding gross margin are essential to regain operating leverage; cost discipline is also needed given SG&A’s 19.5% of sales. Balance sheet risks center on short-term debt concentration and weak coverage, making cash preservation and debt tenor extension priorities. Overall, the quarter demonstrates demand softness, cost absorption, and heightened financial risk, albeit with temporary relief from working capital-driven cash inflows.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (−9.3%) × 0.358 × 2.93 ≈ −9.8%. The largest drag is the net profit margin turning negative (−9.3%), while asset turnover is low at 0.358 and leverage is high at 2.93x. Business drivers: a 19.1% YoY revenue decline compressed utilization, gross margin held to 12.3% but was insufficient to cover SG&A (2.47), producing an operating loss (−0.90) and ordinary loss (−0.99). Interest expense (0.18) further weighed on ordinary results, indicating that higher leverage is not accretive at current margins. Sustainability: the margin pressure appears cyclical/volume-driven, but with SG&A at 19.5% of sales, fixed-cost absorption is a structural issue unless sales recover or costs are reduced. Asset turnover at 0.358 reflects underutilized assets amidst revenue decline; improvement depends on order intake and execution rather than asset base changes in the near term. Leverage of 2.93x magnifies losses, so ROE will remain sensitive to small changes in margin. Concerning trends: SG&A exceeded gross profit (2.47 vs 1.56), indicating negative operating leverage; while SG&A YoY growth is unreported, its ratio to sales is elevated and unsustainable without a sales rebound or cost cuts.

Growth Assessment

Revenue contracted 19.1% YoY to 12.66, indicating demand softness or delayed shipments. Profitability deteriorated sharply: operating income −0.90, ordinary income −0.99 (−94.1% YoY), and net income −1.18 (−98.3% YoY), signaling both weaker core operations and debt service pressure. Gross margin at 12.3% suggests limited pricing power and/or adverse mix; with SG&A at 19.5% of sales, the business lacked the scale to cover fixed costs. Non-operating income (0.12) modestly offset non-operating expenses (0.21), but interest expense (0.18) was the dominant headwind outside operations. EBITDA was negative (−0.32), emphasizing near-term operational strain. Outlook: recovery hinges on order intake stabilization, throughput normalization, and pricing discipline to lift gross margin above SG&A density; otherwise, profitability will remain negative. Given ROIC of −4.2%, incremental investments should be scrutinized until returns improve. With financing CF of −2.20 (likely debt repayment) amid positive OCF, management appears focused on balance sheet repair, which could cap growth investments near term. Absent visibility on backlog and industry demand, revenue sustainability is uncertain; monitoring booking trends and lead indicators will be critical.

Financial Health

Liquidity: Current ratio is 107.8% (slightly above 1.0 but below the 1.5 comfort level); quick ratio is also 107.8% due to limited inventory disclosure. No explicit warning for current ratio (<1.0) is triggered, but buffer is thin. Short-term funding risk: short-term loans total 13.70 versus cash 7.19 and accounts receivable 5.77 (sum 12.96), indicating a potential maturity mismatch if OCF weakens. Working capital is 1.31, but coverage of short-term loans by liquid assets is marginal. Solvency: D/E is 1.93x (approaching the 2.0 warning threshold), and total liabilities are 23.33 against equity of 12.07. Long-term loans are 2.87, indicating reliance on short-term borrowing, heightening refinancing and rate exposure. Interest coverage is −4.99x, signaling elevated debt-service strain. Off-balance sheet obligations: none reported in the provided data. Overall, the balance sheet is leveraged with tight liquidity, and terming-out short-term debt would reduce refinancing risk.

Cash Flow Quality

OCF was 1.43 despite a net loss of −1.18, yielding OCF/NI of −1.21x, which flags earnings quality concerns (cash supported by non-cash items and working capital release rather than profitable operations). D&A of 0.58 contributed to OCF; additional support likely came from reductions in receivables/inventory or higher payables, though detailed working capital components are not disclosed. Free cash flow is estimated at approximately 1.03 (OCF 1.43 minus capex 0.40), positive in the period but potentially non-recurring if working capital re-expands. Financing CF was −2.20, implying debt reduction or dividend/interest outflows; with interest expense of 0.18, most financing outflow appears to be debt repayment. Sustainability: With EBITDA negative (−0.32) and ROIC at −4.2%, sustainable positive FCF depends on ongoing working capital discipline and capex restraint; absent margin recovery, OCF may normalize lower.

Dividend Sustainability

Dividend data were unreported, and the calculated payout ratio of −38.8% is not economically meaningful given negative earnings. Given positive estimated FCF of ~1.03 this quarter but negative profitability, consistent dividend funding from internal cash would be uncertain without a profit turnaround. Leverage (D/E 1.93x) and weak coverage (−4.99x) argue for cash preservation and potential debt reduction over distributions. Policy outlook cannot be inferred from the data; if a dividend exists, near-term sustainability would hinge on maintaining positive OCF and managing short-term debt, rather than earnings coverage.

Risk Assessment

Business Risks:

• Demand weakness leading to a 19.1% YoY revenue decline, driving negative operating leverage
• Low gross margin (12.3%) and adverse mix/pricing pressure limiting ability to cover fixed SG&A
• Execution risk in restoring utilization and throughput to lift asset turnover from 0.358
• Potential customer concentration or cyclicality typical of capital goods (not disclosed, but implied by volatility)

Financial Risks:

• Refinancing risk from high short-term loans (13.70) relative to liquid assets
• Elevated leverage (D/E 1.93x) with negative interest coverage (−4.99x)
• Sensitivity to interest rates given reliance on short-term funding
• Potential covenant risk if lenders impose profitability or coverage tests (not disclosed)

Key Concerns:

• Negative ROE (−9.8%) and ROIC (−4.2%) indicating value erosion
• OCF positive despite losses, implying reliance on working capital release and non-cash items
• SG&A exceeding gross profit (2.47 vs 1.56), unsustainable without sales rebound or cost cuts
• Limited liquidity cushion (current ratio 107.8%) amid large near-term debt maturities

Investment Implications

Key Takeaways:

• Sharp top-line contraction (−19.1% YoY) drove an operating loss and net loss despite modest gross profit
• Earnings quality red flag: OCF positive due to D&A and likely working capital release, not core profitability
• Leverage high (D/E 1.93x) with negative coverage, raising refinancing and rate risk
• ROIC at −4.2% signals subpar capital efficiency; investment discipline required
• FCF was positive (~1.03) but may be transitory without margin recovery

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue recovery
• Gross margin vs SG&A ratio (aim to lift GM above SG&A to restore operating profit)
• OCF/Net income and working capital movements (AR, inventory, AP)
• Short-term debt balance and average interest rate; debt maturity profile
• Interest coverage (target >2x) and D/E trajectory (target <1.5x)
• ROIC trend toward >5% near-term and >7% medium-term

Relative Positioning: Relative to domestic industrial peers, the company is currently weaker on profitability (negative operating and net margins), more leveraged (D/E ~1.9x), and exhibits tighter liquidity, albeit with temporarily supportive OCF. A recovery in demand and cost realignment are prerequisites to close the gap with peers that maintain positive EBITDA and >5% ROIC.

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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