JUKI CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

In Q2 FY2026 (first half), despite a slight decline in revenue, significant increases in Operating Income, Ordinary Income, and Net Income were achieved through improvements in the cost structure, resulting in a decline in revenue but an increase in profit. Revenue was ¥438.5B (-1.2% year on year), while Operating Income surged +2,257.6% to ¥21.7B from ¥0.9B in the previous year. Ordinary Income was ¥8.0B, representing a return to profitability from the ¥10.1B Ordinary Loss recorded in the same period of the previous year. Net Income (profit attributable to owners of the parent, hereinafter “Net Income”) was ¥4.9B, up +254.1% from ¥1.4B in the previous year. The primary drivers of the profit increase were an improved gross profit margin and reductions in selling, general and administrative expenses, which resulted in a review of the cost structure. Meanwhile, non-operating expenses, including interest expenses and foreign exchange losses, restrained the increase at the Ordinary Income level.

Factors Affecting Business Performance

【Revenue】Revenue was ¥438.5B, representing a slight decline of -1.2% year on year. By segment, the core Sewing Business (ApparelManufacturingMachines, 74.5% of revenue) decreased -3.6% to ¥326.7B, while the Industrial Equipment Business (IndustrialEquipment, 25.2% of revenue) grew +6.6% to ¥110.4B, partially offsetting the decline in the Sewing Business.

【Profit and Loss】Operating Income surged +2,257.6% to ¥21.7B (¥0.9B in the previous year), and the Operating Margin improved by +4.7pt to 4.9% from 0.2% in the previous year. The improvement was driven by a reduction in costs resulting from the improvement in the gross profit margin to 30.4% (+3.0pt from 27.4% in the previous year) and the decline in the SG&A expense ratio to 25.5% (-1.7pt from 27.2% in the previous year). By segment, the Sewing Business generated Operating Income of ¥22.2B (6.8% margin), representing a profit growth rate of +78.3%, while the Industrial Equipment Business recorded a loss of ¥0.5B, although this represented an improvement from the previous year. Ordinary Income remained at ¥8.0B, as non-operating expenses of ¥16.1B (interest expenses of ¥9.9B and foreign exchange losses of ¥3.5B) partially offset the benefits of the improvement in Operating Income; nevertheless, the Company returned to profitability from the Ordinary Loss of ¥10.1B in the previous year. Following the difference of +¥0.4B between extraordinary gains of ¥4.2B (gain on sale of investment securities of ¥4.0B) and extraordinary losses of ¥3.8B, Net Income was ¥4.9B (+254.1%). In conclusion, the results reflected a decline in revenue but an increase in profit.

Segment Analysis

The Sewing Business (ApparelManufacturingMachines) recorded revenue of ¥326.7B (74.5% of total revenue, -3.6% year on year) and Operating Income of ¥22.2B (6.8% margin, +78.3% year on year), with a high profit growth rate, making it the substantive driver of Company-wide profit. The Industrial Equipment Business (IndustrialEquipment) posted revenue of ¥110.4B (25.2% of total revenue, +6.6% year on year), but recorded an Operating Loss of ¥0.5B. Although this represented a +95.5% improvement year on year (a reduction in the loss), the business remained loss-making. In addition, beginning in the current first half, the calculation basis for segment profit was changed from Ordinary Income to an Operating Income basis, resulting in disclosures that more directly reflect the core earnings power of each business.

Key Financial Metrics

【Profitability】The Operating Margin improved by +4.7pt to 4.9% from 0.2% in the previous year, with both the gross profit margin of 30.4% (27.4% in the previous year) and the SG&A expense ratio of 25.5% (27.2% in the previous year) contributing to the improvement. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥51.1B, approximately 10 times Net Income of ¥4.9B. Although this indicates strong apparent cash-generation capacity, the primary factor was a temporary release of working capital resulting from decreases in trade receivables and inventories. 【Capital Efficiency】ROE was 1.5%, improving from the approximate 0.4% recorded in the previous year, but remaining low in absolute terms. 【Financial Soundness】The Equity Ratio improved by +2.9pt to 30.0% from 27.1% in the previous year. However, against interest-bearing debt of ¥579.0B (of which short-term borrowings of ¥461.8B account for approximately 80%), cash and deposits were only ¥94.0B, resulting in a cash-to-interest-bearing-debt ratio of 0.16x and a thin liquidity cushion.

Cash Flow Analysis

Operating Cash Flow (OCF) increased +29.1% year on year to ¥51.1B, indicating strong cash generation equivalent to approximately 10 times Net Income of ¥4.9B. However, the primary drivers, in addition to the improvement in profit and loss, were the release of working capital through a ¥26.4B decrease in trade receivables and a ¥21.9B decrease in inventories, and therefore included temporary factors. Investing Cash Flow was nearly zero (-¥0.02B), reflecting the absorption of capital expenditures of ¥7.5B through proceeds from the sale of investment securities and other sources. Free Cash Flow was ¥51.1B and became the primary source of Financing Cash Flow of -¥90.5B (repayment of short-term borrowings of -¥38.3B, repayment of long-term borrowings of -¥46.8B, and share repurchases of -¥3.0B). As a result, cash and deposits decreased -28.4% year on year to ¥94.0B, and liquidity on hand became thinner amid a high degree of short-term dependence relative to interest-bearing debt.

Quality of Earnings

Ordinary Income of ¥8.0B was significantly affected by non-operating expenses of ¥16.1B (interest expenses of ¥9.9B and foreign exchange losses of ¥3.5B) relative to Operating Income of ¥21.7B, indicating a structure in which the improvement at the operating level was not sufficiently carried through to the Ordinary Income level. Of the extraordinary gains of ¥4.2B, the gain on sale of investment securities of ¥4.0B was a temporary factor. Together with extraordinary losses of ¥3.8B (loss on disposal and sale of fixed assets of ¥0.6B and impairment loss of ¥0.1B), the difference in extraordinary gains and losses was limited to +¥0.4B, and its impact on Net Income was limited. Comprehensive Income of ¥16.2B exceeded Net Income of ¥4.9B, with the difference primarily attributable to foreign currency translation adjustments of +¥14.1B. This reflects an accounting increase associated with the valuation of the assets and liabilities of overseas subsidiaries and should be distinguished from factors related to the earnings power of the core business.

Earnings Forecast and Guidance

Progress against the full-year plan was 48.7% for Revenue, 48.2% for Operating Income, 40.1% for Ordinary Income, and 32.9% for Net Income (EPS progress for comparison with the dividend forecast was also at the same level of 33.0%). Compared with the standard progress benchmark of 50% for the first half, Revenue and Operating Income were progressing approximately in line with the standard level, while progress in Ordinary Income and Net Income was lagging. This delay was attributable to non-operating factors such as interest expenses and foreign exchange losses, and the degree to which the effects of interest rates and foreign exchange are mitigated in the second half will be key to achieving the full-year plan. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The interim dividend was zero, and the full-year dividend forecast is ¥15 per share. Dividing the forecast dividend of ¥15 by forecast EPS of ¥50.56 results in a Payout Ratio of 29.7%. The Company conducted share repurchases of ¥3.0B during the current period and is promoting shareholder returns together with the dividend forecast. First-half Free Cash Flow of ¥51.1B is sufficient to fund dividend payments and share repurchases in the second half, although reducing interest-bearing debt is also a priority for the use of funds at this stage.

Risk Factors

1. Refinancing and Interest Rate Risk: Short-term borrowings of ¥461.8B account for approximately 80% of total interest-bearing debt of ¥579.0B, while the ratio to cash and deposits of ¥94.0B is low at 0.16x. Interest expenses of ¥9.9B exceed Ordinary Income of ¥8.0B, indicating that fluctuations in interest rates could have a significant impact on earnings.

2. Foreign Exchange Risk: The Company recorded a foreign exchange loss of ¥3.5B in the current period on the income statement, which contributed to non-operating expenses. Meanwhile, Comprehensive Income included foreign currency translation adjustments of +¥14.1B. Attention should be paid to the fact that the direction of foreign exchange effects differs between the valuation of the assets and liabilities of consolidated subsidiaries and the calculation of profit and loss.

3. Segment Earnings Concentration Risk: The Sewing Business (ApparelManufacturingMachines), which accounts for 74.5% of Revenue, generated virtually all of Operating Income of ¥22.2B, while the Industrial Equipment Business (IndustrialEquipment) recorded a loss of ¥0.5B. The earnings of the overall business portfolio are structurally dependent on a single segment.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both profitability metrics were below the industry median, placing the Company toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate was also significantly below the industry median, indicating underperformance within the industry in terms of growth.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The primary factor behind the improvement in profit and loss was an improvement in the cost structure (gross profit margin and SG&A expense ratio), with the Operating Margin improving by +4.7pt from 0.2% in the previous year to 4.9%. The results were characterized by an increase in profit despite a decline in Revenue, indicating earnings improvement that was not dependent on demand expansion.

2. The significant increase in Operating Cash Flow included temporary factors resulting from the unwinding of working capital (accounts receivable and inventories). The high level of inventories at ¥494.7B will be an observation point when assessing the sustainability of future cash generation.

3. Progress in Ordinary Income and Net Income (40.1% and 32.9%, respectively) lagged progress in Revenue and Operating Income (approximately in the 48% range). The impact of non-operating factors such as interest expenses and foreign exchange losses on the achievement of the full-year plan will be an observation point in the second half.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥964–¥1,020 at ±1% for the cost of equity, and ¥986–¥994 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥0.5 per share has been added back to profit (as a non-cash expense and for comparability with IFRS companies).
• Net Income is significantly compressed relative to Operating Income due to tax expenses, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 33%). This value reflects that compression as reported, and if these factors are temporary, the underlying earnings 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 end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict 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 available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.