JUKI (6440) FY2026 Q2 Earnings Report

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Executive Summary

Cumulative Q2 FY2026 results represented a decline in revenue but an increase in profit, with Operating Income recovering sharply primarily due to structural reforms and SG&A reductions. Revenue declined to ¥438.5B (¥443.7B in the previous year, YoY -1.2%), while Operating Income improved significantly to ¥21.7B (¥0.9B in the previous year, YoY +2257.6%), Ordinary Income to ¥8.0B (¥-10.1B in the previous year, a return to profitability), and Net Income to ¥5.1B (¥1.4B in the previous year, YoY +254.9%). The gross margin improved to 30.4%, and operating leverage took effect alongside SG&A reductions. However, non-operating expenses, including ¥9.9B in interest expenses and ¥3.5B in foreign exchange losses, offset much of Operating Income, resulting in a low conversion rate to Ordinary Income.

Factors Affecting Performance

【Revenue】Revenue was ¥438.5B, representing a 1.2% decline year on year. By segment, Apparel Manufacturing Machinery (Sewing Business) declined to ¥326.7B (74.5% composition ratio, YoY -3.6%), while Industrial Machinery (Industrial Machinery Business) increased to ¥110.4B (25.2% composition ratio, YoY +6.6%). The decline in consolidated revenue was primarily attributable to the slowdown in demand for the core Sewing Business.

【Profit and Loss】Operating Income recovered sharply to ¥21.7B (YoY +2257.6%). Operating Income from Apparel Manufacturing Machinery led consolidated earnings at ¥22.2B (YoY +78.3%, operating margin 6.8%), while Industrial Machinery substantially reduced its loss from the previous year despite recording an Operating Loss of ¥0.5B. The gross margin improved to 30.4%, and SG&A expenses decreased 7.5% year on year to ¥111.7B, with fixed-cost reductions contributing to the increase in profit. However, Ordinary Income remained at ¥8.0B, as non-operating expenses of ¥16.1B, including ¥9.9B in interest expenses and ¥3.5B in foreign exchange losses, offset most of Operating Income. Net Income of ¥5.1B also benefited from ¥4.2B in extraordinary gains, including a ¥4.0B gain on the sale of investment securities. In conclusion, the Company achieved higher profit despite lower revenue, with the increase in profit primarily attributable to improvements in the cost structure and temporary extraordinary gains.

Segment Analysis

Apparel Manufacturing Machinery (Sewing Business) generated revenue of ¥326.7B (74.5% composition ratio, YoY -3.6%) and Operating Income of ¥22.2B (YoY +78.3%, operating margin 6.8%, improved from 3.7% in the previous year), demonstrating a notable improvement in profitability. Industrial Machinery (Industrial Machinery Business) generated revenue of ¥110.4B (25.2% composition ratio, YoY +6.6%) and recorded an Operating Loss of ¥0.5B (reduced from ¥-11.2B in the previous year, operating margin -0.5%). Although the loss narrowed substantially, the segment has not yet returned to profitability. Consolidated profit growth was led by improved profitability in the Sewing Business, while the key focus for the Industrial Machinery Business will be its progress toward breakeven.

Key Financial Metrics

【Profitability】The Operating Income margin was 4.9%, an improvement of approximately 474pt from 0.2% in the same period of the previous year. However, the Net Income margin remained at 1.1%, with interest expenses and foreign exchange losses acting as factors weighing on profit. Annualized ROE was 3.0%. Although the contribution from financial leverage was substantial, the Company’s underlying earning power remains at a low level.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥51.1B, approximately 10 times Net Income. From the perspective of accruals, this confirms support for the reported profit, although reliance on a decrease in accounts receivable was high.【Investment Efficiency】Capital expenditures were ¥7.5B, below depreciation and amortization of ¥16.6B, and CapEx/depreciation and amortization remained at approximately 0.45x.【Financial Soundness】The Equity Ratio improved to 30.0% (from 26.8% in the previous year), while total assets declined from the previous year to ¥1126.1B. Inventories of ¥494.7B accounted for 43.9% of total assets, indicating substantial capital tied up in working capital.

Cash Flow Analysis

Operating Cash Flow (OCF) increased 29.1% year on year to ¥51.1B, and Free Cash Flow (FCF) was also ¥51.1B, as investing cash flow remained close to zero. Operating activities therefore remained the central source of cash generation. In terms of working capital, a ¥26.4B decrease in accounts receivable boosted OCF, while a ¥21.9B increase in inventories and a ¥10.4B decrease in trade payables placed pressure on cash flow. The amount of funds tied up in inventory remains an issue. Financing Cash Flow was a substantial ¥-90.5B, reflecting the repayment of short-term borrowings and the reduction of debt, including ¥3.0B in share repurchases. As a result, cash and deposits declined from the previous year. Overall, the Company is progressing with the reduction of interest-bearing debt by utilizing its operating cash generation capacity.

Earnings Quality

In assessing the quality of current-period earnings, the ¥21.7B improvement in Operating Income resulted from recurring factors—improvements in the gross margin and reductions in SG&A expenses—and suggests a sustainable change in the earnings structure. However, in the conversion to Ordinary Income of ¥8.0B, non-operating expenses such as ¥9.9B in interest expenses and ¥3.5B in foreign exchange losses had a significant impact. These are variable factors affected by foreign exchange movements and interest-rate levels. Net Income of ¥5.1B benefited from ¥4.2B in extraordinary gains, including a ¥4.0B gain on the sale of investment securities; this was a temporary factor. Comprehensive Income was ¥16.2B, significantly exceeding Net Income of ¥5.1B, primarily due to a ¥14.1B increase in foreign currency translation adjustments. Accordingly, this factor should be viewed as distinct from the Company’s underlying yen-denominated earning power.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥900.0B (YoY +1.4%), Operating Income of ¥45.0B (YoY +69.0%), and Ordinary Income of ¥20.0B (YoY +41.6%). While the Q2 cumulative progress rates for Revenue and Operating Income were broadly at standard levels, at 48.7% and 48.2%, respectively, the progress rates for Ordinary Income and Net Income were relatively low at 40.1% and 32.9%, respectively. In the second half, achieving the full-year plan will depend not only on the continued improvement at the Operating Income level but also on improvements in non-operating income and expenses, including the containment of interest expenses and foreign exchange losses. No revision has been made to the earnings forecast.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥15 per share. Based on the full-year Net Income forecast of ¥15.0B, the forecast Payout Ratio is approximately 29.7%, which can be considered a sustainable level when dividends are viewed in isolation. During the current period, the Company conducted ¥3.0B in share repurchases. Together with dividends of ¥2.95B, the total return amount was ¥5.95B. Cumulative Q2 FCF of ¥51.1B was sufficient to cover the full-year dividend and total return amount. However, given the level of interest-bearing debt and dependence on short-term borrowings, the sustainability of shareholder returns will also depend on future cash-generation capacity.

Risk Factors

1. Declining working capital efficiency: Inventories totaled ¥494.7B, accounting for 43.9% of total assets, and inventory turnover days have lengthened. If errors in demand forecasts or changes in product mix occur, this could lead to inventory write-downs and a further deterioration in capital efficiency.

2. High financial leverage: Short-term borrowings of ¥461.8B account for the majority of interest-bearing debt, and the Company has a high degree of reliance on cash and deposits of ¥94.0B. Interest expenses of ¥9.9B are equivalent to approximately 46% of Operating Income of ¥21.7B, and higher interest rates or changes in refinancing terms could constrain interest-servicing capacity.

3. Profitability of the Industrial Machinery Business: The Industrial Machinery segment continues to record an Operating Loss of ¥0.5B, and the sustainability of profit improvement could be impaired by demand fluctuations or price competition. In addition, foreign exchange losses of ¥3.5B indicate the foreign exchange risk associated with overseas operations.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Both the Company’s Operating Income margin and Net Income margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median, and top-line growth is lagging within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Income margin improved by approximately 474pt year on year. The fact that recurring factors—improvements in the gross margin and reductions in SG&A expenses—led the recovery in profit is noteworthy as evidence of progress in improving the cost structure.

2. The progress rates for Ordinary Income and Net Income (40.1% and 32.9%) were below the Operating Income progress rate (48.2%). Non-operating income and expenses, including interest expenses and foreign exchange losses, could therefore become factors driving fluctuations in second-half performance.

3. Inventories account for 43.9% of total assets, and the Company’s dependence on short-term borrowings is also high. Accordingly, improvements in working capital efficiency and trends in the reduction of interest-bearing debt will be key points for assessing changes in the financial structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥960–¥1,016 at cost of equity ±1%, and ¥982–¥991 at ω±0.1.

Notes:

• Goodwill amortization of ¥0.5 per share is added back to profit (due to its being a non-cash expense and to improve comparability with IFRS companies).
• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 33%). This figure reflects that compression at face value; if these factors are temporary, underlying earning power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated using only 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 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. The 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 with a professional as necessary.

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