JUKI (6440) FY2025 FY Earnings Report

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Executive Summary

The key highlight for the current period was the turnaround to operating profitability despite lower revenue, driven by improvements in the cost structure. Revenue was ¥887.6B (-6.7% YoY), Operating Income was ¥26.6B (an improvement of ¥36.2B from the previous year's ¥-9.6B loss), Ordinary Income was ¥14.1B (improving from ¥-33.3B in the previous year), and Net Income was ¥14.3B (turning profitable from ¥-32.7B in the previous year). The gross margin improved to 29.6% (from 27.0% in the previous year, +2.6pt), while SG&A expenses were reduced by ¥25.8B, which were the primary drivers of the return to profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥887.6B, down 6.7% YoY, with the core Sewing Machinery Business declining 4.6% (75.1% of revenue) and the Industrial Machinery Business declining 12.7%. By region, revenue declined across all major regions, particularly Japan (-8.7%), the Americas (-14.7%), and the United States (-12.3%), against a backdrop of weak global demand for capital investment.

【Profit and Loss】The gross margin improved to 29.6% (27.0% in the previous year), and SG&A expenses declined by ¥25.8B YoY to ¥236.0B, resulting in a turnaround to Operating Income of ¥26.6B. Segment profit in the Sewing Machinery Business recovered to ¥32.3B (4.9% margin), while the Industrial Machinery Business continued to post a loss of ¥5.3B. Ordinary Income was limited to ¥14.1B, as non-operating expenses, including interest expenses of ¥18.7B, represented 70.2% of Operating Income. However, extraordinary income of ¥33.2B, including a gain on the sale of investment securities of ¥26.9B, supported Net Income of ¥14.3B. In conclusion, this was a case of higher profit despite lower revenue.

Segment Analysis

The Sewing Machinery Business (75.1% of revenue) recorded revenue of ¥666.2B (-4.6% YoY) and segment profit of ¥32.3B (improving from the previous year's ¥-7.1B loss, with a 4.9% margin), demonstrating a significant recovery in profitability. The Industrial Machinery Business recorded revenue of ¥218.5B (-12.7% YoY) and a segment loss of ¥5.3B (narrowing from ¥-9.7B in the previous year, with a -2.4% margin). Although the loss narrowed, the business has not yet reached profitability. The difference in profit margins between the two businesses was 7.3pt, indicating that the turnaround of the Industrial Machinery Business will determine the scope for further improvement in the Company's overall profit margin. The Industrial Machinery Business also incurred an impairment loss of ¥3.8B.

Key Financial Indicators

【Profitability】The Operating Income margin of 3.0% (compared with -1.0% in the previous year) and Net Income margin of 1.6% (compared with -3.4% in the previous year) both returned to positive territory, but remain low in absolute terms.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥117.1B, reaching 8.4 times Net Income of ¥13.9B. However, temporary cash inflows from the reduction of accounts receivable by ¥79.0B and inventories by ¥69.4B made a significant contribution, and should be evaluated separately from recurring cash-generation capacity.【Investment Efficiency】ROE was 4.4%, the Equity Ratio was 27.1%, and total asset turnover remained low, indicating room for improvement in asset efficiency.【Financial Soundness】Although short- and long-term borrowings were reduced from the previous year, short-term borrowings of ¥516.9B account for the majority of interest-bearing debt. Liquidity requires attention when compared with cash and deposits of ¥131.4B.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥117.1B (+25.0% YoY), Investing Cash Flow was an inflow of ¥43.6B, and Financing Cash Flow was ¥-161.4B, resulting in Free Cash Flow of ¥160.8B. In terms of the composition of OCF, the subtotal before income taxes paid was ¥149.4B, with cash inflows of ¥79.0B from the reduction in accounts receivable and ¥69.4B from the reduction in inventories making significant contributions and more than offsetting the ¥37.9B cash outflow from the reduction in accounts payable. The inflow from Investing Cash Flow resulted from proceeds of ¥60.2B from the sale of investment securities exceeding expenditures for the acquisition of property, plant and equipment and other items, meaning that asset sales served as a source of funds. Financing Cash Flow represented a substantial cash outflow, primarily due to a ¥121.8B reduction in short-term borrowings and ¥84.0B in repayments of long-term borrowings. This indicates that funds generated through working capital reduction and asset sales were allocated to debt reduction. Overall, the high level of cash generation during the current period included temporary factors such as the normalization of inventories and accounts receivable and asset sales, and must be distinguished from the recurring cash-generation capacity of operating activities themselves.

Quality of Earnings

Of Net Income of ¥14.3B, extraordinary income of ¥33.2B (including a gain on the sale of investment securities of ¥26.9B and a gain on the sale of fixed assets of ¥2.9B) coexisted with extraordinary losses of ¥26.0B (including an impairment loss of ¥3.8B), indicating a significant impact from non-recurring items. Non-operating income of ¥10.4B included a foreign exchange gain of ¥3.6B and dividend income of ¥1.2B, while most of non-operating expenses of ¥22.9B consisted of interest expenses of ¥18.7B. Operating Income of ¥26.6B, which represents recurring business profitability, declined in stages to Profit Before Tax of ¥21.3B and Net Income of ¥14.3B, with both financial expenses and non-recurring items affecting final earnings. Comprehensive Income was ¥15.4B, and the difference from Net Income of ¥14.3B was primarily attributable to foreign currency translation adjustments of ¥4.2B; the divergence between the two was limited. Accordingly, although the return to operating profitability is positive, it should be noted that a considerable portion of Net Income depended on the non-recurring factor of asset sales.

Earnings Forecasts and Guidance

The Company forecasts revenue of ¥900.0B (+1.4% YoY), Operating Income of ¥45.0B (+69.0% YoY), and Ordinary Income of ¥20.0B (+41.6% YoY). This implies an improvement of approximately 2.0pt from the current-period Operating Income margin of 3.0% to a forecast margin of 5.0%, assuming further cost efficiencies and improved profitability in the Industrial Machinery Business despite largely flat revenue. Forecast EPS is ¥50.34, and the forecast dividend is ¥15.00.

Shareholder Returns

The annual dividend for the current period was ¥10 per share (¥0 interim dividend and ¥10 year-end dividend), with total dividends of ¥2.98B and a Payout Ratio of 21.3%, a low level. No share repurchases were conducted, and shareholder returns consisted solely of dividends. The Company's forecast annual dividend is ¥15, representing a planned increase from the previous year's actual dividend, and the forecast Payout Ratio against forecast EPS of ¥50.34 is approximately 29.8%. Current-period Free Cash Flow of ¥160.8B substantially exceeds total dividends; however, because Free Cash Flow includes a temporary inflow from the sale of investment securities, the sustainability of dividend payments must be evaluated in light of the recurring recovery in Operating Income and Operating Cash Flow (OCF).

Risk Factors

1. Business concentration risk: The Sewing Machinery Business accounts for 75.1% of revenue, and revenue in this business continues to decline, down -4.6% YoY. The structure is such that demand trends in this business have a substantial impact on Company-wide performance.

2. Financial leverage and liquidity risk: The Equity Ratio is 27.1%, and short-term borrowings of ¥516.9B account for the majority of interest-bearing debt. Compared with cash and deposits of ¥131.4B, the sustainability of refinancing will be an important variable in funding and liquidity management.

3. Earnings quality risk: Of Net Income of ¥14.3B, extraordinary income, including a gain on the sale of investment securities of ¥26.9B, had a significant impact, and support from recurring earnings power is not as strong as that indicated by Operating Income. The Industrial Machinery Business also incurred an impairment loss of ¥3.8B.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and Net Income margin are below the industry median. Although the Company returned to profitability, its profitability remains low within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is substantially below the industry median, placing the Company among the groups with comparatively significant revenue declines within the manufacturing industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating Income turned from the previous year's loss to a profit of ¥26.6B, confirming improvements in the cost structure through gross margin expansion (+2.6pt) and SG&A reduction (-¥25.8B). However, the Operating Income margin of 3.0% remains below the industry median of 8.2%, and the recovery in earnings power is still in progress.

2. The core Sewing Machinery Business improved its profit margin to 4.9%, but the Industrial Machinery Business continued to post a loss of ¥5.3B and also incurred an impairment loss of ¥3.8B. The profitability gap between the two businesses indicates room for improvement in the Company-wide profit margin.

3. Operating Cash Flow (OCF) of ¥117.1B was strong, but temporary factors, namely reductions in accounts receivable and inventories, made a significant contribution, while part of Net Income also depended on gains from the sale of investment securities. The sustainability of recurring earnings power and cash-generation capacity should be verified through actual results from the next period onward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥916–¥970 at Cost of Equity ±1%, and ¥938–¥946 at ω±0.1.

Notes:

• Goodwill amortization of ¥0.5 per share is added back to earnings (to account for non-cash expenses and comparability with IFRS companies).
• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 33%). This value reflects that compression at face value; if these factors are temporary, the underlying value may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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