KUBOTA CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥2.20T
• Operating Income: ¥214.69B
• Net Income: ¥166.10B
• EPS: ¥124.10

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

Kubota’s FY2025 Q3 consolidated results under IFRS show a weaker quarter with margin compression and lower earnings despite resilient cash generation. Revenue declined 3.2% YoY to 22,042.82, while operating income fell 22.0% YoY to 2,146.90, and net income decreased 28.3% YoY to 1,419.62. Operating margin contracted to about 9.7% from roughly 12.1% a year ago, implying ~235 bps of compression as top-line softness met cost rigidity. Net margin similarly compressed by ~226 bps to 6.4% from about 8.7% in the prior year period. EBITDA totaled 3,098.45, translating to a 14.1% margin—still healthy but down from the implied prior-year level given the operating margin deterioration. SG&A reached 4,429.07, or 20.1% of sales, indicating limited operating leverage against the declining revenue base. The effective tax rate was 27.9% (tax 635.42 on PBT 2,278.23), broadly in a normal range and not the main driver of earnings decline. Cash generation outperformed accounting earnings: operating cash flow was 2,107.24 (1.48x of net income), and free cash flow was positive at 1,011.66 even after capex of 1,144.22. Balance sheet resilience remains adequate with an equity ratio of 42.3%, total equity of 27,014.92, and debt-to-equity of 1.16x, although short-term liquidity metrics are unreported. ROE calculated via DuPont is 5.2% (net margin 6.4% × asset turnover 0.378 × leverage 2.16x), reflecting pressure from lower profitability. ROIC is 5.7%, below the 7–8% management benchmark used widely in industrials, implying value creation is modest after cost of capital. Dividend affordability looks reasonable with a 40.5% payout ratio and FCF covering dividends by 1.76x, and even covering dividends plus buybacks by ~1.3x. Equity-method income is small at 18.17 (0.8% of profit), indicating limited reliance on affiliates. Inventory remained sizeable at 6,869.75; managing inventory and working capital will be important to sustain cash quality. Looking forward, restoring margins through pricing, mix, and cost control is the key swing factor, while FX, raw material costs, and demand in agriculture and construction equipment remain primary external drivers.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 6.4% × Asset Turnover 0.378 × Financial Leverage 2.16x = ROE 5.2%. The largest change QoQ/YoY appears in the profitability leg: operating income declined 22.0% on a 3.2% revenue decrease, compressing operating margin by roughly 235 bps (from ~12.1% to ~9.7%). Asset turnover (0.378 = 22,042.82 / 58,317.45) is stable for a capital-intensive manufacturing business and shows no dramatic shift. Financial leverage at 2.16x (Assets/Equity) is moderate and also relatively steady. The primary business reason for ROE compression is weaker operating profitability driven by top-line softness and a relatively fixed SG&A base (SG&A/sales 20.1%), likely reflecting cost inflation and lower operating leverage. This change is partly cyclical (demand/price-mix/FX) and partly cost-structure related; sustainability depends on Kubota’s ability to reprice, normalize input costs, and improve mix toward higher-margin segments. Watch for any SG&A growth outpacing revenue—current data show SG&A heavy relative to sales given the decline in revenue; without YoY SG&A disclosure, we infer operating deleverage rather than SG&A inflation specifically. Net margin dropped ~226 bps (to 6.4% from ~8.7%) due to lower operating margin; tax rate is normal and not a driver. Overall, ROE weakness is mainly profitability-driven rather than asset intensity or leverage changes.

Growth Assessment

Revenue fell 3.2% YoY to 22,042.82, indicating soft demand or adverse price/mix/FX effects. Operating income declined 22.0% to 2,146.90, amplifying the top-line decline through operating deleverage. Net income dropped 28.3% to 1,419.62, reflecting both margin compression and limited below-the-line offsets (equity-method income only 18.17). EBITDA margin at 14.1% remains decent but is down versus the implied prior year, consistent with cost pressure. With gross profit unreported, we infer margin pressure from the operating line: SG&A intensity at 20.1% suggests limited flexibility when revenue slows. ROIC at 5.7% is below the 7–8% hurdle commonly targeted by leading industrials, signaling that growth, as currently composed, is not fully value-accretive. Equity-method contributions are immaterial for Kubota’s profile, so core operating execution will dominate profit trajectory. Outlook hinges on stabilization in agriculture/construction end markets, normalization of input costs, and inventory rightsizing to protect price discipline. FX sensitivity (notably USD/JPY and EUR/JPY) could either cushion or exacerbate top-line/margin trends. Near-term, expect a focus on cost control, pricing actions, and mix improvement to restore double-digit operating margins.

Financial Health

Total assets were 58,317.45 and total equity 27,014.92, yielding an equity ratio of 42.3% and financial leverage of 2.16x—both indicative of a solid capital base. Debt-to-equity is 1.16x, within conservative bounds for an industrial manufacturer but warranting monitoring given cyclical end markets. Cash and equivalents stood at 2,221.35. Current assets were 27,250.52; current liabilities were unreported, so current and quick ratios are not calculable—no explicit warning can be issued, but short-term liquidity cannot be fully assessed. Maturity mismatch risk cannot be quantified due to absent short-term debt and current liability detail; however, positive OCF and FCF mitigate near-term funding pressure. Inventory is significant at 6,869.75; efficient turnover will be important to avoid cash tying and margin discounting. No off-balance sheet obligations were reported in the data provided. Interest coverage is not calculable due to missing interest expense, but EBITDA of 3,098.45 provides a cushion against typical interest burdens for this leverage level.

Cash Flow Quality

OCF/Net Income is 1.48x (2,107.24 / 1,419.62), indicating high-quality earnings with cash conversion above the 1.0x benchmark. Free cash flow was positive at 1,011.66 after capex of 1,144.22, demonstrating the business can self-fund investments. Dividend payments of 571.78 and share repurchases of 200.02 were covered by FCF at ~1.31x on a combined basis and 1.76x for dividends alone, suggesting sustainable cash returns under current conditions. D&A of 951.55 is substantial, supporting OCF; without a working capital breakdown, we cannot parse the exact contribution from inventory/receivables/payables changes. No clear signs of working capital manipulation are visible from the reported aggregates, but the high inventory balance warrants monitoring for potential future cash release or discounting risk. Investing cash outflow (-1,095.58) is broadly in line with capex, indicating limited inorganic spend this period. Financing CF (-1,670.63) reflects shareholder returns and possible net debt repayment (detail unreported).

Dividend Sustainability

The calculated payout ratio is 40.5%, comfortably below typical 60% thresholds, indicating room to maintain dividends despite earnings softness. FCF coverage of dividends is 1.76x; even including buybacks, FCF coverage is roughly 1.3x, suggesting current distributions are sustainable from internally generated cash. Cash and equivalents of 2,221.35 add a further buffer. With ROE at 5.2% and ROIC at 5.7%, incremental distribution growth should be balanced against reinvestment needs to lift returns toward management benchmarks. DPS was unreported; therefore, precise dividend trajectory cannot be assessed, but the payout and coverage metrics argue for stability under base-case assumptions. Any sharp downturn in end-market demand or spike in capex could pressure coverage, but present cash generation provides resilience.

Risk Assessment

Business Risks:

• Demand volatility in global agriculture and compact construction equipment impacting volumes and mix
• Input cost and logistics inflation compressing margins if not offset by pricing
• Inventory risk (6,869.75) leading to potential discounting or cash tie-up if demand softens further
• FX fluctuations (USD/JPY, EUR/JPY) affecting both revenue translation and cost base
• Competitive pricing pressure in tractors and construction equipment affecting ASPs and share
• Potential delays in passing through costs due to dealer/channel dynamics

Financial Risks:

• Profitability-driven ROE deterioration to 5.2% and ROIC at 5.7% below target range
• Limited visibility on short-term liquidity metrics due to unreported current liabilities and interest expense
• Moderate leverage (D/E 1.16x) could be more constraining if EBITDA weakens further
• Concentration of tangible assets and inventory raising working capital sensitivity in downturns

Key Concerns:

• Operating margin compression of ~235 bps YoY to ~9.7% despite only a 3.2% revenue decline
• SG&A intensity at 20.1% limiting operating leverage in a softer top-line environment
• Net income down 28.3% YoY, outpacing revenue decline and pointing to mix/cost issues
• ROIC below 7–8% management benchmark suggests limited value creation until margins recover

Investment Implications

Key Takeaways:

• Quarter characterized by revenue softness and pronounced margin compression
• Cash generation strong: OCF 1.48x of net income, FCF positive after capex
• Balance sheet solid with 42.3% equity ratio; leverage moderate at 1.16x D/E
• Dividend capacity intact with 40.5% payout and FCF coverage of 1.76x
• ROE (5.2%) and ROIC (5.7%) below desirable thresholds; margin recovery is key lever

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Inventory levels and implied inventory days/turnover
• Order trends and backlog in agriculture and construction equipment
• Price/mix realization vs. input cost inflation (steel, components, freight)
• FX sensitivity and hedging outcomes (USD/JPY, EUR/JPY)
• ROIC progress relative to 7–8% target range
• Free cash flow after dividends and buybacks

Relative Positioning: Within global ag/construction machinery peers, Kubota’s cash conversion remains solid, leverage is moderate, and balance sheet quality is sound; however, margins and ROIC underperform top-tier benchmarks, placing emphasis on execution in pricing, mix, and cost control to narrow 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
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis