DAIKIN INDUSTRIES,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.48T
• Operating Income: ¥246.60B
• Net Income: ¥157.20B
• EPS: ¥549.61

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

Daikin Industries (6367) reported FY2026 Q2 (cumulative) consolidated results showing resilient profitability despite a slight topline softness. Revenue was ¥2,478.8bn, down 0.6% YoY, while operating income was essentially flat at ¥246.6bn, implying stronger margin discipline and cost control. Gross profit reached ¥860.8bn, delivering a gross margin of 34.7%, signaling healthy pricing and mix in core HVAC. Operating margin was 9.9%, maintained despite the revenue decline, suggesting tight SG&A management and improved product mix. Ordinary income came in at ¥241.9bn and net income at ¥160.9bn, up 6.1% YoY, indicating benefits below the operating line and likely a normalized tax burden versus last year. Estimated effective tax rate is roughly 29% (tax of ¥65.3bn versus an implied pre-tax of about ¥226bn), though the provided “0.0%” effective tax metric is not reflective of actual taxation due to data constraints. ROE calculated via DuPont is 5.28%, driven by a 6.49% net margin, 0.462x asset turnover, and 1.76x financial leverage, pointing to balanced returns with moderate leverage. Cash generation was strong: operating cash flow (OCF) was ¥318.5bn, 198% of net income, indicating solid earnings quality and a positive contribution from working capital. EBITDA was ¥341.1bn (13.8% margin), and interest coverage stood at 10.6x, underscoring ample debt-servicing capacity. Liquidity is robust with a current ratio of 185% and a quick ratio of 139%, supported by sizeable working capital of ¥1,310.6bn. The balance sheet remains conservative with total liabilities at ¥2.27tn against equity of ¥3.05tn (D/E 0.74x), providing flexibility for investment through the cycle. Inventory was ¥709.2bn; combined with strong OCF, this suggests continued progress in inventory normalization and disciplined order-to-cash execution. While reported Investing CF, Equity Ratio, cash, and dividend fields show zeros, these reflect non-disclosure under the data feed rather than true zero values and limit certain conclusions (e.g., FCF and payout). Overall, Daikin’s H1 performance demonstrates margin resilience, healthy cash conversion, and a solid financial profile despite a mild revenue contraction. Near-term drivers will likely include regional HVAC demand trends, pricing relative to input costs, inventory normalization, and FX. The outlook appears balanced: operational discipline is offsetting weaker sales, but sustained earnings growth will require stabilization in volumes and continued price/mix management.

Profitability Analysis

ROE (DuPont) is 5.28% = 6.49% net margin × 0.462x asset turnover × 1.76x leverage, reflecting steady profitability with moderate balance sheet leverage. Operating margin of 9.9% on a −0.6% revenue base indicates margin resilience and cost discipline, likely from pricing and mix in HVAC and tight SG&A control. Gross margin at 34.7% is robust, supporting healthy unit economics and pricing power. EBITDA margin at 13.8% demonstrates adequate coverage of fixed costs and suggests manageable operating leverage. Ordinary income margin (9.8%) closely tracks operating margin, implying limited negative non-operating drag; interest expense of ¥23.2bn is well covered (10.6x). Net margin of 6.49% benefited from a normalized tax burden; estimated effective tax rate is ~29% based on disclosed tax and net income. Overall margin quality appears strong, with pricing/mix and cost control offsetting slight volume softness; incremental operating leverage is present but tempered by investment and macro headwinds.

Growth Assessment

Revenue declined 0.6% YoY to ¥2,478.8bn, indicating mild demand softness or tougher comps in certain regions/products. Operating income was flat YoY at ¥246.6bn, evidencing that margin actions compensated for the small revenue decline. Net income growth of 6.1% YoY suggests improved below-OP line factors and normalized taxes. Given the strong gross margin (34.7%), pricing power remains intact and should support revenue quality even in a slower demand environment. Sustainability of growth will hinge on HVAC replacement cycles, commercial project timing, and regional demand (notably China, Europe, and the U.S.). With asset turnover at 0.462x, incremental growth may depend on utilization and supply chain normalization to lift efficiency. Profit quality is supported by OCF/NI of 1.98x, indicating cash validation of earnings. Near-term outlook: stable to modestly improving if volumes recover and price-cost spread stays favorable; watch for FX swings, inventory destocking progress, and competitive pricing.

Financial Health

Liquidity is strong: current ratio 184.9% and quick ratio 139.0%, underpinned by current assets of ¥2.85tn vs current liabilities of ¥1.54tn. Working capital is sizable at ¥1,310.6bn, providing a buffer against demand fluctuations. Solvency is sound: total liabilities ¥2.27tn vs equity ¥3.05tn (D/E 0.74x), and financial leverage at 1.76x is moderate for a global industrial. Interest coverage of 10.6x indicates low refinancing risk under current earnings power. Total assets are ¥5.37tn, with inventories at ¥709.2bn; balance sheet capacity appears adequate for capex and selective M&A. The reported equity ratio of 0.0% is an unreported metric in this dataset and not a concern. Overall, the company exhibits a conservative capital structure and ample headroom for investment.

Cash Flow Quality

OCF was ¥318.5bn versus net income of ¥160.9bn, yielding an OCF/NI of 1.98x and indicating high earnings quality. EBITDA was ¥341.1bn; OCF was slightly below EBITDA, implying that positive working capital movements (¥63bn benefit versus NI+D&A) were offset by cash taxes and interest (¥23bn interest plus taxes), netting to solid cash conversion. Free cash flow cannot be computed because Investing CF is unreported (listed as 0). Working capital discipline appears supportive: inventories at ¥709.2bn and strong OCF suggest progress on inventory turns and collections. Absent capex data, we cannot assess structural FCF or capital intensity trends; historically, HVAC capacity investments can be material, so sustaining strong FCF will depend on capex cadence.

Dividend Sustainability

Dividend data (DPS, payout, FCF coverage) is not disclosed in this dataset and shows as zero, which should not be interpreted as an actual zero dividend. Without capex or investing CF, FCF coverage of dividends cannot be assessed. Based on current profitability (net income ¥160.9bn) and strong OCF (¥318.5bn), underlying capacity to fund dividends appears intact, subject to capex requirements and policy. Daikin historically maintains a balanced shareholder return policy alongside growth investments; however, specific FY2026 Q2 dividend guidance is not available here. Payout ratio assessment, FCF coverage, and policy outlook therefore remain indeterminate from the provided data.

Risk Assessment

Business Risks:

• End-market demand volatility in residential and commercial HVAC across key regions (China, Europe, U.S.).
• Pricing pressure from global competitors amid normalization of supply chain conditions.
• Input cost and logistics volatility affecting price-cost spread and margins.
• FX fluctuations impacting both revenue translation and cost base.
• Regulatory changes in refrigerants and energy efficiency standards requiring ongoing R&D and capex.
• Project cycle risk in commercial/industrial HVAC and potential delays in installations.

Financial Risks:

• Potential increase in interest expense if rates remain elevated, though coverage is currently strong (10.6x).
• Capex intensity for capacity/technology investments could compress FCF in certain periods.
• Working capital swings (notably inventories and receivables) could affect cash conversion.
• Exposure to emerging market currencies and credit risk in dealer/distributor channels.

Key Concerns:

• Slight revenue decline (−0.6% YoY) despite resilient margins; volume trajectory needs monitoring.
• Inability to assess FCF and payout due to unreported investing cash flows and dividend data.
• Inventory level (¥709.2bn) requires continued normalization to sustain OCF.

Investment Implications

Key Takeaways:

• Margins resilient: operating margin 9.9% and gross margin 34.7% despite −0.6% revenue.
• Strong cash generation: OCF ¥318.5bn, 1.98x net income, indicating high earnings quality.
• Moderate leverage and solid liquidity: D/E 0.74x, current ratio 185%, interest cover 10.6x.
• ROE 5.28% supported by balanced DuPont drivers; scope to improve via asset turnover.
• Data gaps (Investing CF, dividends, equity ratio) limit FCF and payout analysis.

Metrics to Watch:

• Order trends and regional revenue mix (China/Europe/U.S.).
• Price-cost spread and gross margin sustainability.
• Inventory turnover and days working capital.
• Capex and Investing CF disclosure to assess FCF trajectory.
• OCF/NI and EBITDA-to-OCF conversion.
• FX impacts on revenue and margins.
• Interest expense run-rate and coverage.

Relative Positioning: Within global HVAC peers, Daikin demonstrates strong margin discipline, robust cash conversion, and a conservative balance sheet; continued improvements in asset turnover and clarity on capex/FCF will be key to enhancing return metrics.

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