UNION TOOL CO. FY2026 Q2 Earnings Report

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Executive Summary

Both revenue and earnings posted substantial growth, with a particularly notable structural improvement in profit margins. Revenue was ¥27.06B (+48.3% year on year), Operating Income was ¥7.60B (+81.4%), Ordinary Income was ¥8.03B (+109.4%), and Net Income was ¥5.96B (+108.7%); in each case, earnings expanded at a faster pace than revenue. The primary factors were expanding demand in the Asia and Japan segments, improvements in gross margin driven by better pricing and product mix and higher capacity utilization (43.7%, +2.6pt year on year), and the operating leverage effect from a lower SG&A ratio (15.6%, -2.6pt year on year).

Factors Affecting Business Performance

【Revenue】By segment, including inter-segment transactions, Asia recorded the strongest growth at ¥17.63B (+63.2%), followed by Japan at ¥17.29B (+41.5%). North America grew by ¥1.29B (+40.3%), while Europe grew by ¥1.47B (+16.6%), both relatively slower than Asia and Japan. The primary drivers of revenue growth were expanding demand in the Asian region and higher capacity utilization, while the Japan segment also reflected growth in high-value-added products.

【Profit and Loss】Gross margin improved to 43.7% (+2.6pt from 41.1% in the prior year), while Operating Income margin expanded to 28.1% (+5.1pt from 23.0% in the prior year). Ordinary Income was boosted by non-operating income of ¥0.59B, including foreign exchange gains of ¥0.29B and dividend income of ¥0.09B, which exceeded non-operating expenses of ¥0.15B, including ¥0.08B in handling fees. Extraordinary gains and losses were largely offset by a gain on the sale of investment securities of ¥0.05B and an impairment loss of ¥0.05B, resulting in a minor net impact. Corporate income taxes and other taxes of ¥2.07B (effective tax rate: 25.8%) were deducted from Profit Before Tax of ¥8.03B, resulting in Net Income of ¥5.96B. In conclusion, the Company achieved both revenue and earnings growth.

Segment Analysis

The Japan segment is the largest pillar in both scale and profitability, with revenue of ¥17.29B (+41.5%), Operating Income of ¥4.48B (+101.1%), and a margin of 25.9% (18.2% in the prior year). The Asia segment recorded the highest growth rate, with revenue of ¥17.63B (+63.2%), Operating Income of ¥3.05B (+131.6%), and a margin of 17.3% (12.2% in the prior year), making a significant contribution to earnings growth. In contrast, North America generated revenue of ¥1.29B (+40.3%) and Operating Income of ¥0.07B (+19.4%), with a low margin of 5.7%. Europe was the only segment to report lower earnings, with revenue of ¥1.47B (+16.6%) but Operating Income of ¥0.06B (-16.4%). Its margin also declined to 3.8% (4.6% in the prior year), indicating weaker profitability relative to the other regions.

Key Financial Indicators

【Profitability】Operating Income margin improved to 28.1% from 23.0% in the prior year, a +5.1pt improvement, while Net Income margin expanded by +6.3pt to 22.0% (15.7% in the prior year). Gross margin was 43.7% (41.1% in the prior year), supported by improved pricing and product mix and higher capacity utilization. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥7.00B, or 1.17 times Net Income of ¥5.96B, providing solid earnings support. However, accounts receivable increased by ¥2.10B and inventories by ¥0.81B, respectively, somewhat slowing the conversion of working capital into cash. 【Investment Efficiency】ROE was 5.0%, improving from 3.6% in the same period of the prior year (prior-year Net Income of ¥2.86B ÷ prior-year equity of ¥80.00B), although the substantial equity structure, reflected in an Equity Ratio of 91.0%, is keeping the level relatively low. 【Financial Soundness】The Equity Ratio was 91.0%. Against current liabilities of ¥10.19B, the Company held current assets of ¥79.78B and cash and deposits of ¥46.81B, indicating an extremely stable financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥7.00B, an increase of +97.3% from ¥3.55B in the prior year, and exceeded Net Income of ¥5.96B. However, accounts receivable increased by ¥2.10B and inventories by ¥0.81B, respectively. Even after the offsetting effect of a ¥0.77B increase in accounts payable, the accumulation of working capital continued to constrain cash generation. Investing Cash Flow was -¥7.90B, primarily due to capital expenditures of ¥8.69B, which increased substantially from ¥2.89B in the prior year. Free Cash Flow was -¥0.89B, reflecting a state of investment exceeding internally generated cash. Financing Cash Flow was significantly positive at +¥31.07B, primarily due to proceeds of ¥32.39B from the disposal of treasury stock; even including dividend payments of ¥1.22B, cash inflows exceeded outflows. As a result, cash and cash equivalents at the end of the period rose substantially to ¥46.80B from ¥16.42B in the prior year.

Earnings Quality

Comprehensive Income was ¥8.40B, exceeding Net Income of ¥5.96B by ¥2.44B, primarily due to fair value and translation factors such as ¥1.39B in valuation differences on other securities and ¥1.07B in foreign currency translation adjustments. Of the ¥0.59B in non-operating income, the ¥0.29B foreign exchange gain is strongly affected by market fluctuations, whereas the ¥0.09B in dividend income represents recurring income. Extraordinary gains and losses were largely offset by a ¥0.05B gain on the sale of investment securities and a ¥0.05B valuation loss, resulting in only a minor net impact on earnings. OCF of ¥7.00B exceeded Net Income of ¥5.96B, indicating sound quality from an accruals perspective. However, increases in accounts receivable and inventories are weighing on working capital, and the effectiveness of inventory and receivables management during this period of rapid revenue growth will be a factor determining future earnings quality.

Earnings Forecast and Guidance

Progress against the full-year forecast was 48.2% for Revenue (¥27.06B/¥56.10B), 45.2% for Operating Income (¥7.60B/¥16.80B), 46.2% for Ordinary Income (¥8.03B/¥17.40B), and 48.5% for Net Income (¥5.96B/¥12.30B), with all figures generally tracking in line with the plan. The full-year forecast calls for substantial year-on-year growth of +39.7% in Revenue, +92.5% in Operating Income, and +113.9% in Ordinary Income. An upward revision to the earnings forecast was announced during the current quarter. This represents an increase in the full-year outlook reflecting the strong first-half results.

Shareholder Returns

The interim dividend was ¥75, bringing the full-year dividend forecast, including the expected year-end dividend, to ¥150, an increase from the previous period’s actual dividend of ¥60. A revision to the dividend forecast, namely an increase, was announced during the current quarter. The Payout Ratio is approximately 23.8%, calculated based on forecast full-year Net Income of ¥12.30B and estimated total dividends of approximately ¥2.92B (¥150 × 19,483 thousand shares outstanding after deducting treasury stock). Share repurchases during the current period were minimal at ¥0.002B, while the treasury stock balance decreased substantially from ¥6.365B at the end of the prior period to ¥0.799B at the end of the current period, suggesting that previously held treasury stock was disposed of or sold.

Risk Factors

1. Increase in working capital: Accounts receivable increased to ¥17.18B (¥14.48B in the prior year), with the increase during the period reaching ¥2.10B. The accumulation of accounts receivable and inventories accompanying the sharp expansion in revenue is one factor limiting OCF growth (+97.3%) to a level slightly below Net Income growth (+108.7%).

2. Foreign exchange impact: Foreign exchange gains of ¥0.29B were recorded in non-operating income, equivalent to approximately 3.6% of Ordinary Income of ¥8.03B. Such income may fluctuate with foreign exchange movements.

3. Variability in segment profitability: The Europe segment was the only segment to report lower earnings and low profitability, with Operating Income of ¥0.06B (-16.4% year on year) and a margin of 3.8% (4.6% in the prior year). North America also remained at a low margin of 5.7%, compared with 25.9% in Japan and 17.3% in Asia.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both significantly exceed the industry median and rank at the upper end of the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median and represents an exceptional growth rate within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The expansion of the Operating Income margin to 28.1% (23.0% in the prior year) and the Net Income margin to 22.0% (15.7% in the prior year) reflects the operating leverage effect from improved pricing and product mix and a lower SG&A ratio (15.6%, 18.2% in the prior year), indicating a qualitative improvement in the earnings structure accompanying revenue growth.

2. In addition to a robust financial foundation consisting of cash and deposits of ¥46.81B and an Equity Ratio of 91.0%, the substantial disposal of treasury stock (balance declining from ¥6.365B to ¥0.799B) increased Financing Cash Flow by +¥31.07B, drawing attention as a change in the capital structure.

3. Capital expenditures of ¥8.69B were approximately 4.5 times depreciation and amortization of ¥1.94B, reducing Free Cash Flow to -¥0.89B. However, this may be viewed as proactive investment in increased production and expanded production capacity, while progress against the full-year plan (Revenue 48.2%, Operating Income 45.2%) remains broadly on track.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥6,180–¥6,547 at ±1% for the cost of equity, and ¥6,354–¥6,367 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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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. 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 professionals as necessary.

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