| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥8100.1B | ¥7125.6B | +13.7% |
| Operating Income / Operating Profit | ¥980.4B | ¥616.1B | +59.1% |
| Ordinary Income (for JGAAP) | ¥1027.8B | ¥631.2B | +62.8% |
| Net Income | ¥791.4B | ¥481.1B | +64.5% |
| ROE | 2.7% | 1.7% | - |
FY2026 (Dec) Q1 results delivered strong top-line and earnings growth: Revenue 8,100.1B (+974.6B YoY +13.7%), Operating Income 980.4B (+364.3B +59.1%), Ordinary Income 1,023.6B (estimate, +396.5B +62.8%), Net Income Attributable to Parent 732.9B (+319.4B +77.2%). Operating margin improved to 12.1% (+3.5pt vs prior-year 8.6%), driven by demand recovery in North America and Europe and price pass-through / mix improvement. By region, North America 3,270.2B (+21.9%), Europe 1,023.4B (+26.0%) led overseas markets, while Domestic was solid at 1,844.0B (+11.9%). The core Machinery segment led the gains with Revenue 7,008.2B (+14.9%) and Operating Income 796.8B (+45.0%), raising segment margin to 11.4% (+2.4pt vs prior-year 9.0%). Versus the Full Year plan (Revenue ¥3.15T, Operating Income ¥300.0B, Net Income Attributable to Parent ¥210.0B) Q1 progress rates are Revenue 25.7%, Operating Income 32.7%, Net Income 34.9%, ahead of a standard cadence.
[Revenue] Revenue of 8,100.1B (+13.7%) was driven by the core Machinery segment at 7,008.2B (+14.9%). By region, North America contributed 3,270.2B (prior-year 2,682.8B, +587.4B +21.9%) and Europe 1,023.4B (prior-year 812.6B, +210.8B +26.0%) as demand recovered in major overseas markets. Domestic was also solid at 1,844.0B (+11.9%), with all regions recording revenue increases. Foreign exchange translation effects likely provided partial uplift (foreign operations translation difference in other comprehensive income +91.2B). Water & Environment segment showed steady growth at 1,051.6B (+6.5%), and company-wide sales mix was Machinery 86.5%, Water & Environment 13.0%. Cost of sales was 5,538.0B (prior-year 4,951.1B, +11.9%) moving with higher sales, but below the revenue growth rate of +13.7%, leading gross margin improvement to 31.6% (prior-year 30.5% +1.1pt).
[Profitability] Operating Income 980.4B (+59.1%) benefited from revenue growth, gross margin expansion (+1.1pt) and operating leverage on SG&A. SG&A was 1,567.9B (+7.9%), below the revenue growth rate of +13.7%, improving SG&A ratio to 19.4% (prior-year 20.4% -1.0pt). Net of Other Income 46.0B and Other Expenses 59.8B produced a net -13.8B, improving from prior-year net -104.6B (temporary costs declined). Operating margin expanded to 12.1% (prior-year 8.6% +3.5pt), with Machinery segment margin 11.4% (prior-year 9.0% +2.4pt) and Water & Environment margin 13.6% (prior-year 13.5% +0.1pt). Ordinary Income 1,027.8B (+62.8%) was aided by net financial income of +47.4B (Financial Income 70.7B − Financial Expenses 23.3B), improving from prior-year +16.4B (+31.0B improvement). Equity in earnings of affiliates was +9.6B (turned positive from prior-year -1.2B). Income taxes were 245.9B (prior-year 148.9B +97.0B), with an effective tax rate of 23.9% (prior-year 23.6%). Net Income Attributable to Parent was 732.9B (+77.2%), net margin 9.0% (prior-year 5.8% +3.2pt). In summary, revenue gains across regions, price pass-through and mix improvement expanding gross margins, SG&A control delivering operating leverage, and improved financial income combined to produce the strong results.
The Machinery segment led with Revenue 7,008.2B (+14.9%), Operating Income 796.8B (+45.0%), and margin 11.4% (prior-year 9.0% +2.4pt). Recovery in North American agricultural equipment demand, dealer inventory normalization, and expanded sales in Europe and Asia contributed; price pass-through and mix improvement supported margin expansion. Water & Environment segment delivered Revenue 1,051.6B (+6.5%), Operating Income 142.8B (+6.9%), and margin 13.6% (prior-year 13.5% +0.1pt), maintaining stable profitability. Both segments posted revenue and profit growth; of the company-wide Operating Income 980.4B, Machinery accounted for 81.3% and Water & Environment 14.6%. Corporate adjustments (company-wide expenses, etc.) contributed 40.1B of profit (improved from prior-year -71.0B), reflecting changes in allocation methods for corporate expenses including FX gains.
[Profitability] Operating margin 12.1% (prior-year 8.6% +3.5pt) was driven by gross margin 31.6% (prior-year 30.5% +1.1pt) and SG&A ratio 19.4% (prior-year 20.4% -1.0pt). Net Income Attributable to Parent margin 9.0% (prior-year 5.8% +3.2pt), ROE 2.7% (annualized, comparable to prior-year estimate). Basic EPS 64.45 yen (prior-year 35.97 yen +79.2%).
[Cash Quality] Operating Cash Flow (OCF) 147.5B versus Net Income Attributable to Parent 732.9B yields OCF/Net Income ratio 0.20x, a low level; increases in working capital (Inventories +562.6B, Trade Receivables +926.7B, Trade Payables -139.9B) are the main cause, weakening cash conversion.
[Investment Efficiency] Total Asset Turnover 0.52x (annualized). Capital expenditure 271.9B is 76.4% of depreciation 356.1B, indicating replacement investment levels.
[Financial Soundness] Equity Ratio 42.9% (prior-year 42.3% +0.6pt), current ratio 170.4%. Interest-bearing debt total 2,277.92B with Cash and Cash Equivalents 238.39B gives Net Interest-Bearing Debt 2,039.53B and D/E ratio 0.85x, sound levels. Interest coverage using OCF is 147.5B ÷ 23.3B ≒ 6.3x, but given low OCF, EBIT-based coverage (980.4B ÷ 23.3B ≒ 42x) indicates ample capacity to service interest.
OCF was 147.5B (prior-year 228.4B −35.4%). Quarterly profit was 791.4B with OCF/Net Income ratio 0.19x, low primarily due to working capital increases. Trade receivables rose by 872.2B (sales expansion and credit extension), inventories increased 509.8B (stock buildup to meet demand expectations), and trade payables decreased 140.3B, totaling approximately a 1,522B deterioration in working capital. Income tax payments 271.4B also pressured OCF. Investing CF was -274.6B (prior-year -503.5B, outflow reduced), with capital expenditure 271.9B and intangible asset investment 70.7B offset partly by business transfer proceeds 63.4B and proceeds from subsidiary sales 10.4B. Free Cash Flow was -127.1B (prior-year -275.1B, deficit narrowed) but remained negative; dividend payments 284.4B and share buybacks 7.7B (total shareholder returns 292.1B) were not covered by OCF alone and were supplemented by Financing CF. Financing CF was -313.7B (prior-year -481.9B, outflow reduced), with long-term borrowings of 1,640.5B, long-term repayments 1,443.7B, net short-term borrowings down 76.7B, and dividend payments 284.4B as main items. Cash and cash equivalents at period end were 238.39B (opening 276.96B −38.56B), with FX effects +5.51B providing partial support. Seasonality in working capital appears strong; focus will be on recovery of cash through inventory and receivable reductions.
This quarter’s earnings are based on ongoing business activities with limited one-off impacts. Net Other Income of -13.8B (Other Income 46.0B − Other Expenses 59.8B) improved from prior-year net -104.6B, indicating fewer one-time expenses. Financial Income 70.7B includes interest/dividend income 43.9B; net financial income +47.4B (Financial Income 70.7B − Financial Expenses 23.3B, with interest paid 7.7B and lease expenses 68.9B included) lifted pre-tax profit. Equity-method gains +9.6B (reversed from prior-year -1.2B) were also positive. Income taxes 245.9B and effective tax rate 23.9% are within normal range; the gap between Ordinary Income 1,027.8B and Net Income Attributable to Parent 732.9B is small and tax burden is not unusual. However, OCF 147.5B versus Net Income Attributable to Parent 732.9B yields an accrual ratio ((Net Income − OCF) ÷ Total Assets) ≒ 9.3%, a high level, indicating slow cash conversion. The main cause is working capital increases (Inventories +509.8B, Receivables +872.2B, Payables -140.3B), likely proactive investment based on demand outlook; if receivable collection and inventory drawdown do not proceed smoothly, concerns over earnings quality could arise. Comprehensive income 918.6B (Parent portion 911.0B) exceeded Net Income 791.4B, with Other Comprehensive Income 127.2B including FX translation differences +91.2B and fair value changes on financial assets +34.7B contributing positively. FX translation gains are non-cash and temporary in nature; operating-income based assessment is appropriate for evaluating recurring earning power.
Full year guidance is unchanged: Revenue 3,150.0B (+4.3% YoY), Operating Income 300.0B (+13.0%), Net Income Attributable to Parent 210.0B (+12.5%), EPS 184.69 yen, DPS 26 yen. Q1 results (Revenue 8,100.1B, progress 25.7%; Operating Income 980.4B, progress 32.7%; Net Income Attributable to Parent 732.9B, progress 34.9%) are all ahead of the standard cadence (~25%), indicating an accelerated pace. High progress on Operating Income and Net Income reflects stronger-than-expected Q1 price pass-through, mix improvement and SG&A restraint. Regionally, North America and Europe demand is robust, suggesting upside risk to the full-year outlook. However, OCF at 147.5B is low and normalization of working capital is key to full-year cash generation. Full-year OCF target is not disclosed, but seasonality typically compresses inventories and receivables from Q2 onward, which could improve annual OCF/Net Income ratio. No revisions to earnings or dividend forecasts were made this quarter, but potential upward revisions at the Q2 results are a point of attention.
Q1 dividend payments were 284.4B (prior-year 287.4B), implying a payout ratio versus Net Income Attributable to Parent of approximately 38.8%, an appropriate level. Full-year dividend forecast is 26 yen per share (prior-year 25 yen +1 yen), and the expected payout ratio on full-year EPS 184.69 yen is 14.1%, conservative with ample dividend capacity. Share buybacks were 7.7B (prior-year 0.1B), small in scale; combined total return ratio (dividends + buybacks) is about 39.9%. With Free Cash Flow -127.1B, dividends are not being fully funded by OCF in the short term, but cash and cash equivalents 238.39B and borrowings provide support for dividend continuity. If working capital normalizes and OCF improves, dividend sustainability and potential for further increases would strengthen. Historical dividend was 25 yen per share (FY2025), and the current +1 yen increase signals a policy of consecutive dividend increases.
Working Capital Expansion Risk: Trade receivables 1,943.5B (prior-year 1,768.0B +9.3%), Inventories 7,451.5B (prior-year 6,888.9B +8.2%) are elevated, and OCF 147.5B is only 0.20x of Net Income Attributable to Parent 732.9B. Days Inventory Outstanding (DIO) is roughly 110 days (Inventories 7,451.5B ÷ forecasted annual Cost of Sales 2.4T × 365), Days Sales Outstanding (DSO) roughly 135 days (Trade Receivables 1,943.5B ÷ forecasted annual Revenue 3.15T × 365), indicating lengthening cycles. If demand forecasts are incorrect, inventory writedowns or receivable collection delays could materially worsen cash flows.
Demand Cycle Volatility Risk: The Machinery segment accounts for 86.5% of sales; performance is sensitive to the cyclical North American agricultural equipment demand. North America sales 3,270.2B (40.4% of company) indicate high regional concentration; dealer inventory adjustments, changes in agricultural subsidy policy, or declines in crop prices could sharply reduce demand and lead to excess inventory. Europe and Asia showed diverging YoY trends (Europe +26.0%, Asia -4.7%), reflecting regional variances that may reduce resilience to external shocks.
Interest Rate & FX Risk: Interest-bearing debt 2,277.92B with financial expenses 23.3B implies an average borrowing cost of ~0.4%, currently low; rising interest rates would increase interest burden. The company operates lease and credit businesses including financial receivables (current 634.77B, non-current 1,561.03B), and higher rates could compress net interest margins. On FX, foreign operations translation difference added +91.2B to OCI this quarter; a yen appreciation would act in the opposite direction and, given overseas sales ~77% (Domestic 1,844.0B ÷ Total 8,100.1B ≒ 22.7%), a stronger yen would be a headwind to revenue.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 12.1% | 6.8% (2.9%–9.0%) | +5.3pt |
| Net Margin | 9.8% | 5.9% (3.3%–7.7%) | +3.9pt |
The company’s operating and net margins substantially exceed manufacturing medians, highlighting strong pricing power and margin management.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 13.7% | 13.2% (2.5%–28.5%) | +0.5pt |
Revenue growth is roughly in line with the industry median, maintaining an expansion pace consistent with the broader manufacturing recovery.
※ Source: Company compilation
Recovery in North America and Europe, together with price pass-through and mix improvement, drove a significant operating margin expansion to 12.1% (prior-year 8.6% +3.5pt). Q1 operating income progress 32.7% and net income progress 34.9% are ahead of the full-year plan, indicating accelerated achievement. Versus industry benchmarks, operating margin +5.3pt and net margin +3.9pt show clear outperformance, with Machinery segment margin improvement to 11.4% (prior-year 9.0% +2.4pt) underpinning company-level profitability. Potential for upward revisions to full-year guidance is a focal point.
Conversely, OCF 147.5B is only 0.20x of Net Income Attributable to Parent 732.9B, with working capital increases (Receivables +872.2B, Inventories +509.8B) delaying cash conversion. Free Cash Flow -127.1B cannot cover dividends 284.4B from OCF alone; normalization of working capital (faster inventory turnover and receivables collection) is critical to sustainable growth and cash generation recovery. Liquidity and balance sheet metrics (Cash 238.39B, Equity Ratio 42.9%, Interest Coverage ~42x on EBIT/Financial Expenses) are strong, limiting short-term risk, but working capital management will be a key monitoring point.
This report was auto-generated by AI analyzing XBRL financial filing data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from publicly disclosed financial statements. Investment decisions are your own responsibility; consult professional advisors as necessary.