YAMAZAKI (6147) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 FY2026 declined in both revenue and earnings due to the rapid deterioration of the Machine Tools Business, with operating income falling into the red. Revenue was ¥17.9B (-22.0% YoY), Operating Income was ¥-2.0B (-357.9% from ¥0.8B in the previous year), Ordinary Income was ¥-2.1B (-368.8%), and Net Income was ¥-2.3B (-489.9% from ¥0.6B in the previous year). The primary factors were a 41.2% decline in revenue from the Machine Tools Business and its shift to a segment loss of ¥2.5B; the resilience of the Transportation Equipment Business was insufficient to absorb the Company-wide loss.

Factors Driving Performance Changes

【Revenue】Revenue was ¥17.9B, down -22.0% YoY. By segment, the Transportation Equipment Business remained nearly flat at ¥11.0B (61.5% of total, -1.9% YoY), whereas the Machine Tools Business recorded a substantial revenue decline to ¥7.0B (38.5% of total, -41.2% YoY), becoming the primary driver of the Company-wide revenue decline.

【Profit and Loss】The gross margin remained at 10.0% (gross profit of ¥1.8B), while SG&A expenses of ¥3.8B exceeded gross profit, causing operating results to deteriorate to ¥-2.0B (operating margin of -11.0%). The Transportation Equipment Business secured segment income of ¥0.5B (margin of 4.9%, down from 6.2% in the previous year), while the Machine Tools Business recorded a substantial loss of ¥-2.5B (margin of -35.9%), becoming the central factor behind the Company-wide loss. The extraordinary loss of ¥0.2B (business restructuring expenses) was a temporary factor, but the primary cause of the net loss of ¥-2.3B was the operating loss. As a result of the revenue and earnings declines, the current quarter is classified as a period of declining revenue and earnings.

Segment Analysis

The Transportation Equipment Business reported revenue of ¥11.0B (-1.9% YoY) and segment income of ¥0.5B (margin of 4.9%), maintaining profitability despite a decline from the previous year's margin of 6.2%. The Machine Tools Business reported revenue of ¥7.0B (-41.2% YoY) and a segment loss of ¥-2.5B (margin of -35.9%, compared with +0.4% in the previous year), falling into a substantial loss and becoming the primary cause of the Company-wide loss. A provision for losses on order contracts of ¥0.5B was recorded, suggesting that deteriorating project profitability may be reflected in earnings.

Key Financial Metrics

【Profitability】The operating margin was -11.0% and the net profit margin was -12.9%, both representing a significant deterioration from the same period of the previous year (operating margin of 3.3% and equivalent net profit margin of 2.6%). The gross margin remained at 10.0%, while the SG&A ratio was 21.0%, exceeding the gross margin. 【Cash Flow Quality】Although Operating Cash Flow has not been disclosed, work in process of ¥1.3B accounted for approximately 46.5% of total inventory of ¥2.8B, indicating signs of stagnation in the production process and deterioration in project profitability. 【Investment Efficiency】ROE was -20.4%; under DuPont analysis, the primary cause was the negative net profit margin. Total asset turnover of 0.498x and financial leverage of 3.18x are not supporting profitability. 【Financial Soundness】The Equity Ratio was 31.5% (down from 35.8% in the previous year), the D/E ratio was 2.18x, and interest coverage was -7.56x, indicating that the Company is unable to absorb interest expense through Operating Income. The current ratio was 102.2%, representing a minimum level.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, funding trends can be assessed from balance sheet movements. Cash and deposits increased to ¥9.2B from ¥8.5B in the previous year, while short-term borrowings remained high at ¥13.9B (¥15.2B in the previous year), accounting for approximately 78.9% of current liabilities of ¥17.6B. Trade receivables and notes receivable declined to ¥3.5B (¥6.8B in the previous year), indicating progress in cash collection; however, inventory stagnation, including ¥1.3B of work in process, may be affecting capital efficiency. The ratio of cash to short-term borrowings remained at 0.66x, and refinancing and the stability of cash management will be important factors determining future funding trends.

Earnings Quality

The current-period loss was primarily attributable to the operating loss, while the extraordinary loss of ¥0.2B (business restructuring expenses) was a temporary factor. Non-operating expenses of ¥0.3B (including ¥0.3B of interest expense) exceeded non-operating income of ¥0.2B (including ¥0.1B of dividend income), further depressing Ordinary Income from operating results. The recognition of a provision for losses on order contracts of ¥0.5B suggests that deteriorating profitability on existing orders may continue to affect earnings, requiring attention to earnings quality from an accrual perspective. Comprehensive income was ¥-2.4B, approximately the same level as the net loss of ¥-2.3B, as foreign currency translation adjustments of ¥-0.5B and valuation difference on available-for-sale securities of ¥+0.5B effectively offset each other.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥23.4B, an operating loss of ¥2.5B, and a net loss attributable to owners of the parent of ¥3.5B. Revenue progress was 76.5% (¥17.9B/¥23.4B), slightly above the standard Q3 progress benchmark of 75%. Meanwhile, progress toward the operating loss forecast was 79.7% (¥-2.0B/¥-2.5B), indicating that losses are being incurred at a pace exceeding the progress benchmark and that deterioration on the earnings front is proceeding faster than expected. Progress toward the net loss forecast was limited to 65.9% (¥-2.3B/¥-3.5B), leaving downside risk to the full-year forecast if profitability in the Machine Tools Business does not improve in Q4. The earnings forecast was revised during the current quarter.

Shareholder Returns

The Q2 dividend was ¥0 (no dividend), while the full-year dividend forecast has been maintained at ¥10 (no revision to the dividend forecast). As the Company recorded a net loss for the current period, the ordinary Payout Ratio (total dividends ÷ net income) cannot be meaningfully calculated. Although dividend cash flow coverage cannot be assessed because OCF has not been disclosed, given the financial structure characterized by ¥9.2B in cash and deposits alongside a high degree of dependence on short-term borrowings, achievement of the full-year dividend forecast will depend on containing losses in Q4 and maintaining stable cash management.

Risk Factors

1. Deterioration in Machine Tools Business profitability: Revenue declined substantially by -41.2% YoY, and the segment loss widened to ¥-2.5B (margin of -35.9%). The provision for losses on order contracts of ¥0.5B suggests deteriorating profitability on existing projects, with both the likelihood of occurrence and potential impact considered high.

2. Financial leverage and cash management: The D/E ratio was 2.18x and the Debt/Capital ratio was 60.0%, indicating a high degree of dependence on debt. Short-term borrowings of ¥13.9B accounted for 78.9% of current liabilities. Interest coverage was -7.56x, indicating that current operating earnings capacity is insufficient to absorb interest expense.

3. Inventory and production stagnation risk: Work in process of ¥1.3B accounted for approximately 46.5% of total inventory of ¥2.8B, suggesting bottlenecks in the production process or delays in conversion into finished goods. Demand for machine tools is susceptible to the capital investment cycle, and demand trends may affect inventory liquidation.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Compared with the industry median, the Company's profitability is substantially below the industry level in both operating margin and net profit margin.

Growth and Capital Efficiency

While revenue growth companies represent the industry median, the Company experienced a substantial revenue decline and is underperforming its industry peers from a growth perspective.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Transportation Equipment Business maintained profitability at a margin of 4.9% (down from 6.2% in the previous year), but its scale was insufficient to offset the Machine Tools Business loss of ¥-2.5B. The financial results indicate that the profitability gap between the businesses has widened.

2. Progress toward the full-year operating loss forecast was 79.7%, indicating that deterioration is progressing faster than the standard benchmark of 75%. Whether profitability in the Machine Tools Business improves in Q4 will be a key focus in assessing achievement of the full-year forecast.

3. The comparison of short-term borrowings of ¥13.9B with cash of ¥9.2B (cash-to-current-liabilities ratio of 0.66x) indicates a structure in which refinancing terms and relationships with financial institutions will determine the stability of cash management. This is a structural characteristic highlighted by the financial results.

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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 constitute a recommendation to invest in any specific security. 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 with professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was materially weak, with the company moving from profit to a sizeable operating and net loss as the machine-tool business deteriorated sharply. Revenue fell 22.0% year on year to ¥1.787bn. Operating income swung to a ¥196m loss from a ¥76m profit in the prior-year period. Net income attributable to owners swung to a ¥230m loss from a ¥59m profit, equivalent to EPS of negative ¥52.04. Gross profit declined 60.0% to ¥178m, substantially faster than the revenue decline. The gross margin compressed to 10.0% from 19.5%, a deterioration of approximately 950bp. SG&A expenses increased 1.5% to ¥375m despite the 22.0% revenue contraction, creating severe negative operating leverage. Consequently, the operating margin fell to negative 11.0% from positive 3.3%, a compression of roughly 1,430bp. The transportation-equipment segment remained profitable, but its segment profit declined 23.2% to ¥53m. The machine-tool segment posted a ¥251m segment loss, versus a ¥5m profit a year earlier, and was the principal driver of consolidated losses. Non-operating income of ¥19m was insufficient to offset interest expense of ¥26m and other non-operating costs. A ¥16m extraordinary loss further widened the pre-tax loss to ¥223m. Balance-sheet liquidity is only marginally above parity, with a 102.2% current ratio, while short-term borrowings account for 81.7% of interest-bearing debt. Financial leverage is elevated, with D/E at 2.18x and debt representing 60.0% of capital. Management has revised its full-year forecast and now expects revenue of ¥2.337bn, operating loss of ¥247m, and net loss attributable to owners of ¥350m. Q3 cumulative revenue already represents 76.5% of the revised annual target, but the company still expects a further ¥51m operating loss and ¥120m net loss in Q4. The near-term investment focus is therefore the pace of machine-tool demand recovery, containment of order-related losses, restoration of gross margin, and the ability to refinance a debt structure concentrated in short-term borrowings.

Profitability Analysis

The supplied annualized DuPont analysis shows ROE of negative 27.1%, composed of a negative 12.9% net profit margin, 0.664x asset turnover, and 3.18x financial leverage. The negative net margin is the dominant cause of the negative ROE, while high leverage magnifies the loss borne by equity holders. Revenue contraction and gross-margin compression were the fundamental operating drivers: gross profit fell to ¥178m from ¥446m, reducing the gross margin by about 950bp to 10.0%. SG&A rose to ¥375m from ¥370m, so fixed-cost absorption weakened substantially as sales declined. The resulting EBIT margin was negative 11.0%, triggering the low-operating-efficiency alert and indicating that the present revenue base cannot absorb the cost structure. Interest coverage was negative 7.56x because EBIT was negative ¥196m against ¥26m of interest expense; this is a debt-service concern rather than an indication of interest affordability. The five-factor DuPont tax burden of 1.031 and interest burden of 1.139 are mechanically above 1.0 because losses were increased by tax expense and financing costs, respectively, and should not be interpreted as favorable. The transportation-equipment segment is the core business by operating-income contribution, generating segment profit of ¥53m on revenue of ¥1.099bn. Its revenue declined only 1.9% year on year, but segment profit fell 23.2%, and its segment margin narrowed to 4.9% from 6.2%. Machine-tool revenue declined 41.2% to ¥688m and segment margin collapsed to negative 36.5% from positive 0.4%, indicating acute volume, project-cost, or utilization pressure. The ¥54m provision for loss on orders is consistent with pressure on project profitability within the manufacturing operation. The high work-in-process ratio of 46.5% of inventory is a warning sign for production bottlenecks, delayed completion, or slower conversion of production costs into sales. The earnings recovery profile is therefore highly dependent on restoring machine-tool volumes and project margins rather than on financial leverage.

Growth Assessment

Revenue weakness was concentrated in the machine-tool segment, where external sales fell ¥482m year on year, compared with a ¥21m decline in transportation-equipment sales. Transportation equipment accounted for 61.5% of consolidated external revenue and exhibited relatively resilient sales, but its profit decline shows that the segment is not fully insulated from cost pressure. Machine tools accounted for 38.5% of revenue but produced the entire consolidated operating loss, making its recovery the central determinant of earnings normalization. The revised full-year revenue forecast of ¥2.337bn implies Q4 revenue of approximately ¥550m, below the Q3 cumulative run-rate, and full-year sales are projected to decline 24.5% year on year. Q3 cumulative revenue progress of 76.5% is 1.5 percentage points ahead of the standard 75% Q3 pace, so the revenue target is broadly aligned with seasonal expectations. Operating-loss progress is 79.4% of the revised full-year loss forecast, however, indicating that losses remain expected in Q4 even if their quarterly magnitude moderates. Net-loss progress is 66.0% of the full-year forecast, implying a further Q4 net loss of roughly ¥120m. The forecast therefore does not yet embed a return to profitability. The fall in gross margin from 19.5% to 10.0% suggests that sales recovery alone may not be sufficient without a meaningful improvement in pricing, product mix, manufacturing efficiency, and loss-making order control. The company is a manufacturing business with PPE of ¥1.507bn, equal to 42.0% of total assets, so operating leverage can amplify both a recovery in factory utilization and a further demand downturn.

Financial Health

Liquidity is tight but remains marginally positive: current assets of ¥1.796bn exceed current liabilities of ¥1.758bn, producing a current ratio and quick ratio of 102.2% and working capital of ¥38m. The current ratio is only slightly above 1.0, leaving limited protection against ordinary working-capital volatility. Cash and deposits increased ¥71m year on year to ¥918m, but cash covers only 0.66x of ¥1.387bn short-term loans. Short-term borrowings represent 81.7% of total interest-bearing debt, explicitly flagging refinancing risk and creating a maturity mismatch because liquid resources are insufficient to retire short-term borrowings without ongoing lender support. Interest-bearing debt totals ¥1.697bn, while total equity has declined to ¥1.130bn from ¥1.413bn. D/E is 2.18x, above the 2.0x warning threshold, and reflects aggressive debt financing relative to the remaining equity base. Debt-to-capital is 60.0%, at the stated concern threshold, further limiting balance-sheet flexibility during a loss-making period. The high-leverage alert is particularly consequential because annualized ROIC is negative 13.7%; debt-funded capital is presently generating a negative operating return. Interest coverage of negative 7.56x is also a material debt-service alert, as current EBIT does not cover cash interest expense. Accounts receivable declined ¥324m, or 48.0%, to ¥351m, improving the reported trade-receivable balance but also reflecting the lower sales base. Electronically recorded monetary claims were ¥207m, bringing operating customer claims to a more meaningful level than trade receivables alone suggest. Investment securities increased ¥67m, or 47.1%, to ¥210m and represent 5.9% of total assets; this provides some balance-sheet value but does not resolve operating cash-generation pressure. Retained earnings moved from positive ¥224m to negative ¥51m, a ¥275m deterioration that closely reflects the current-period loss and materially reduces loss-absorption capacity. Net defined benefit liability was ¥157m and asset-retirement obligations were ¥39m, representing ongoing non-debt obligations alongside borrowings. Property, plant and equipment remained substantial at ¥1.507bn, including ¥780m of land, which supports asset backing but also underscores the capital-intensive cost base. Intangible assets were limited at ¥17m, or 0.5% of assets, so the balance sheet is not exposed to a material goodwill or intangible-asset impairment overhang.

Notable B/S Changes

Retained earnings: -¥275m year on year, from +¥224m to -¥51m (-122.8%) - current-period losses have exhausted accumulated earnings and reduced equity loss-absorption capacity. Accounts receivable: -¥324m year on year, from ¥675m to ¥351m (-48.0%) - lower trade receivables support near-term working-capital release but are also consistent with the lower revenue base. Investment securities: +¥67m year on year, from ¥143m to ¥210m (+47.1%) - securities now represent 5.9% of assets, creating market-value sensitivity while providing a potential source of financial flexibility. Intangible assets: -¥8m year on year, from ¥25m to ¥17m (-32.1%) - the decline confirms that intangible assets remain immaterial at 0.5% of total assets. Total equity: -¥283m year on year, from ¥1.413bn to ¥1.130bn (-20.0%) - capital erosion has increased D/E to 2.18x and reduced financial flexibility. Work in process: -¥187m year on year, from ¥318m to ¥131m (-58.8%) - the absolute reduction is favorable, but WIP remains 46.5% of inventory and requires monitoring given loss-making machine-tool operations.

Cash Flow Quality

Working-capital indicators point to mixed operational cash-conversion conditions. Trade accounts receivable declined by ¥324m year on year, while cash and deposits rose by ¥71m to ¥918m. Inventory components total ¥282m, comprising ¥111m of raw materials, ¥131m of work in process, and ¥40m of finished goods. Work in process represents 46.5% of inventory, above the 40% warning threshold; this may indicate slower production flow, delayed acceptance, or elevated execution risk in manufacturing projects. The ¥54m provision for loss on orders reinforces the need to monitor whether work in process can be converted into revenue without further margin erosion. Accounts payable increased ¥26m to ¥141m, while short-term funding remains heavily dependent on borrowings rather than supplier credit. The deterioration in operating profitability, combined with the high WIP ratio and short-term debt concentration, makes cash conversion and working-capital release central to financial resilience.

Dividend Sustainability

The company paid no interim dividend at Q2, while the revised full-year forecast indicates DPS of ¥10. With forecast EPS of negative ¥78.90 and forecast net loss attributable to owners of ¥350m, a conventional dividend payout ratio is not meaningful and the proposed dividend would not be covered by earnings. A ¥10 DPS would require approximately ¥44m of cash based on average shares outstanding of 4.437m. This amount is modest relative to cash deposits of ¥918m, but the balance-sheet context is constrained by ¥1.387bn of short-term loans, a 102.2% current ratio, and negative retained earnings of ¥51m. Preservation of liquidity and restoration of profitability are more important determinants of dividend capacity than the indicated per-share amount. The sustainability of the full-year dividend therefore depends on maintaining refinancing access and avoiding further operating-loss or order-loss deterioration.

Risk Assessment

Business risks include Machine-tool demand and execution risk: segment revenue fell 41.2% to ¥688m and the segment moved from a ¥5m profit to a ¥251m loss. The negative 36.5% segment margin indicates a high-impact risk to earnings if customer capital expenditure remains weak or loss-making projects persist., Margin-recovery risk: consolidated gross margin fell about 950bp to 10.0%, triggering the low-gross-margin alert. This is materially below the 20% benchmark and indicates that pricing, mix, input costs, utilization, or project-cost control have weakened., Manufacturing execution risk: work in process is 46.5% of total inventory, above the 40% warning level. The concentration may be typical of project-oriented machinery production to some extent, but its elevated level alongside a ¥54m order-loss provision raises the likelihood of delayed deliveries, further cost overruns, or inventory conversion pressure., Negative operating leverage: SG&A increased 1.5% while revenue declined 22.0%. The fixed-cost structure magnified the revenue downturn into a ¥196m operating loss and will continue to constrain profitability unless volume and gross profit recover., Foreign-exchange exposure: the company recorded a ¥3m FX loss. The immediate earnings effect is limited, but export-oriented manufacturing demand and input costs can remain sensitive to exchange-rate movements..

Financial risks include High leverage: D/E of 2.18x exceeds the 2.0x warning threshold. With annualized ROIC at negative 13.7%, debt financing is amplifying equity downside rather than supporting productive returns., Debt-service risk: interest coverage is negative 7.56x, well below the 2.0x warning threshold, because EBIT was negative ¥196m against interest expense of ¥26m. Interest obligations must therefore be met from liquidity, asset monetization, or financing capacity rather than current operating earnings., Refinancing risk: 81.7% of interest-bearing debt is short term, materially above the 40% warning level. Cash covers only 0.66x of short-term loans, making continued banking support and debt rollover important., Thin liquidity buffer: the 102.2% current ratio is above 1.0 but well below the 1.5x healthy benchmark. A small deterioration in customer collections, inventory conversion, or credit availability could pressure working capital., Capital erosion risk: total equity declined ¥283m year on year to ¥1.130bn, while retained earnings became negative. Further forecast losses would weaken the capital base and raise leverage further..

Key concerns include The low-operating-efficiency alert is supported by an EBIT margin of negative 11.0%, versus a positive 3.3% in the prior-year period. This is the most immediate issue for the earnings thesis because operational improvement is required before financing metrics can normalize., The high-WIP-ratio alert is important because work in process has fallen in absolute terms but remains disproportionately large within a smaller inventory base. Its impact is elevated by the loss-making machine-tool segment and order-loss provision., The company forecasts a full-year operating loss of ¥247m and net loss of ¥350m even after Q3 results, so management guidance does not imply an imminent return to profitability., The proposed ¥10 full-year DPS despite a forecast net loss and negative retained earnings increases the importance of liquidity discipline and lender confidence..

Investment Implications

Key takeaways include The transportation-equipment segment remains the core profit contributor, but its margin declined to 4.9%, limiting its ability to offset machine-tool losses., Machine tools are the key earnings swing factor: a 41.2% sales decline and ¥251m segment loss drove the consolidated operating loss., Gross-margin compression to 10.0% and SG&A growth despite lower sales demonstrate severe negative operating leverage., Leverage and debt maturity concentration materially heighten the consequences of continued operating losses., The revised forecast still assumes Q4 losses, so evidence of margin stabilization is more important than revenue progress alone..

Metrics to watch include Machine-tool segment revenue, segment margin, and the pace of loss reduction, Consolidated gross margin and SG&A-to-sales ratio, Provision for loss on orders and work-in-process proportion of inventory, Short-term loan balance, refinancing terms, cash-to-short-term-debt ratio, and current ratio, Interest expense and interest coverage, Retained earnings, total equity, D/E, and annualized ROIC, Execution against the revised FY2026 operating-loss forecast of ¥247m and net-loss forecast of ¥350m.

Regarding relative positioning, The company currently screens below standard manufacturing profitability and solvency benchmarks: EBIT margin is negative 11.0%, gross margin is 10.0%, annualized ROE is negative 27.1%, annualized ROIC is negative 13.7%, D/E is 2.18x, and short-term debt concentration is 81.7%. Its meaningful land holdings and profitable transportation-equipment operation provide some asset and earnings support, but these positives are presently outweighed by the machine-tool loss, weak margins, and refinancing-sensitive capital structure.