BROTHER INDUSTRIES,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥437.78B
• Operating Income: ¥38.72B
• Net Income: ¥28.28B
• EPS: ¥111.30

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Brother Industries (6448) reported FY2026 Q2 consolidated IFRS results with modest top-line growth and largely flat profitability, indicating a stable but subdued operating environment. Revenue rose 2.5% YoY to 4,377.77, while operating income increased 0.5% YoY to 387.23, implying limited operating leverage in the period. Gross profit of 1,911.32 translates to a solid gross margin of 43.7%, suggesting pricing and cost management remained resilient despite cost pressures. SG&A expenses of 1,481.51 appear to have absorbed much of the gross profit expansion, constraining operating margin to roughly 8.8%. Net income was 282.71 (+0.4% YoY), and the effective tax rate was 32.9%, slightly above Japan’s baseline, tempering bottom-line growth. DuPont analysis shows ROE at 4.0%, driven by a 6.5% net margin, low asset turnover of 0.466, and conservative financial leverage of 1.32x, underscoring returns below typical cost of equity benchmarks. Balance sheet strength is notable: equity ratio stands at 75.5%, and total liabilities are 0.34x equity, reflecting low solvency risk. Operating cash flow was robust at 450.50, equating to 1.59x net income and signaling good earnings quality. Free cash flow was 226.67, after investing cash outflows of 223.83, with capex of 172.86 notably below depreciation and amortization of 264.97, implying relatively light reinvestment intensity or timing effects. Cash and equivalents totaled 1,727.76, providing meaningful liquidity, though precise current and quick ratios cannot be calculated due to unreported current liability and cash breakdown. Working capital appears heavy, with inventories at 2,268.40 and receivables at 1,347.19; indicative cash conversion metrics suggest a long operating cycle, typical for hardware-centric businesses. Total comprehensive income of 390.13 exceeded net income by over 100, likely reflecting favorable other comprehensive items such as FX translation, which bolsters equity but not cash. Dividend payout ratio is reported at a high 91.2%; however, period FCF of 226.67 appears sufficient relative to dividends paid of 128.11, though the provided FCF coverage ratio (0.88x) suggests definition or timing differences. Overall, the business shows resilient margins and strong cash conversion, but subdued ROE is driven by low asset turnover and conservative leverage. Inventory intensity and limited operating leverage are key areas to watch for improvement in the second half. With many XBRL items unreported (e.g., interest expense, current liabilities, R&D), some standard ratios cannot be validated, requiring caution in interpretation. The outlook hinges on demand normalization in printing and industrial segments, cost discipline, and working capital optimization to sustain cash generation.

Profitability Analysis

ROE_decomposition: ROE 4.0% = Net margin 6.5% x Asset turnover 0.466 x Financial leverage 1.32x. The muted ROE is primarily a function of low asset turnover and conservative leverage, with margins stable but not expanding materially. margin_quality: Gross margin at 43.7% is robust, indicating reasonably stable pricing and input costs. Operating margin is approximately 8.8% (387.23 / 4,377.77), reflecting elevated SG&A absorption. EBITDA margin is 14.9%, providing a cushion but not translating into stronger operating margin growth this quarter. Effective tax rate at 32.9% is slightly high, modestly dampening net margins. operating_leverage: Revenue grew 2.5% YoY while operating income rose only 0.5% YoY, indicating limited operating leverage and some cost headwinds or adverse mix effects. D&A of 264.97 versus capex of 172.86 suggests a capital-light investment phase, but savings have not flowed through to higher operating margins yet.

Growth Assessment

revenue_sustainability: Top-line growth of +2.5% YoY suggests steady but modest demand across core businesses. Given the company’s exposure to printing and industrial solutions, the pace indicates normalization rather than a cyclical upswing. profit_quality: Net income growth of +0.4% YoY lagged revenue growth, implying some cost or mix pressures. Gross margin remains healthy, but SG&A growth appears to have offset gross profit gains, constraining operating leverage. outlook: Absent segment disclosures, a cautious outlook is appropriate: maintaining gross margins, improving cost control, and optimizing working capital could support H2 performance. FX could remain a swing factor (comprehensive income outpaced net income), and inventory normalization would be a key contributor to sustaining cash flow.

Financial Health

liquidity: Cash and equivalents are 1,727.76. Current assets are 5,740.73, but current liabilities are unreported, so current and quick ratios are not calculable. Working capital reported at 5,740.73 likely reflects current assets only, indicating data limitation rather than true net working capital. solvency: Equity ratio is 75.5%, with total liabilities of 2,411.78 versus equity of 7,094.28 (liabilities/equity ≈ 0.34x), indicating low balance-sheet risk. Interest-bearing debt is unreported, preventing a precise net cash/debt assessment, but strong cash reserves mitigate refinancing risk. capital_structure: Financial leverage is 1.32x (assets/equity), consistent with a conservative posture. With interest expense unreported, interest coverage cannot be validated, but EBITDA of 652.20 and low leverage imply ample capacity to service any debt.

Cash Flow Quality

earnings_quality: OCF/Net income at 1.59x indicates solid cash conversion, suggesting accrual quality is good. Total comprehensive income exceeded net income by 107.42, likely FX-related; this strengthens equity but is non-cash. FCF_analysis: OCF 450.50 less investing CF of -223.83 yields FCF of 226.67. Capex of 172.86 is below D&A of 264.97, pointing to either timing benefits or lower reinvestment needs this period. Sustained FCF depends on working capital discipline, particularly inventory drawdown. working_capital: Receivables 1,347.19 and inventories 2,268.40 are sizable relative to H1 sales (AR days ≈ 56; inventory days ≈ 175; AP days ≈ 68; rough estimates using period flows). This implies a long cash conversion cycle; improvement here could release cash in H2. Note these are approximations due to lack of average balance data.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is reported at 91.2%, which is elevated versus typical sustainable ranges. DPS data are unreported, and the ratio may reflect interim periodization or definition differences. FCF_coverage: Reported FCF coverage is 0.88x, suggesting dividends near or slightly above FCF on the reported basis. However, using available cash flow figures, FCF of 226.67 comfortably exceeds dividends paid of 128.11 (≈1.77x), indicating definitional or timing discrepancies; we flag this as a data limitation. policy_outlook: With strong balance sheet metrics and healthy OCF, the dividend appears supported near term, but sustainability at a ~90% earnings payout would require stable profitability and continued working capital discipline. Clarity on full-year DPS guidance and policy would improve visibility.

Risk Assessment

Business Risks:

• Demand softness or structural decline in office printing hardware and consumables
• Input cost inflation and component availability/supply chain disruptions
• Foreign exchange volatility impacting revenues, margins, and OCI
• Product mix shifts toward lower-margin categories
• Competitive pricing pressure in printing and industrial equipment
• Execution risk in inventory normalization and channel management

Financial Risks:

• Working capital intensity leading to cash flow volatility
• Potential inventory obsolescence given elevated inventory levels
• Interest rate and credit market risks (interest-bearing debt not disclosed)
• Tax rate variability (effective rate 32.9% above baseline)
• Limited transparency due to unreported items (e.g., current liabilities, interest expense, R&D)

Key Concerns:

• Low ROE (4.0%) driven by low asset turnover and conservative leverage
• Limited operating leverage with OI growth trailing revenue growth
• High reported payout ratio (~91%) versus modest earnings growth

Investment Implications

Key Takeaways:

• Modest revenue growth (+2.5% YoY) with flat operating momentum (+0.5% YoY OI)
• Healthy gross margin (43.7%) but SG&A absorbed gains; operating margin ~8.8%
• ROE at 4.0% remains subdued due to low asset turnover and conservative leverage
• Strong cash conversion (OCF/NI 1.59x) and positive FCF of 226.67
• Conservative balance sheet (equity ratio 75.5%; liabilities/equity ~0.34x)
• Inventory-heavy working capital suggests opportunity for cash release if normalized
• Dividend appears supported by cash flows, though reported payout ratio is high

Metrics to Watch:

• Operating margin trajectory and SG&A discipline
• Inventory levels and cash conversion cycle (AR/AP/Inventory days)
• Gross margin resilience amid input cost and FX changes
• OCF/NI ratio and FCF generation in H2
• ROE drivers: asset turnover improvement and capital allocation
• Effective tax rate normalization
• OCI drivers (FX translation) and their impact on equity

Relative Positioning: The company shows stronger balance sheet resilience and cash generation than many hardware peers, but profitability (ROE, operating leverage) lags higher-return industrial and tech hardware names; performance improvement hinges on mix, cost control, and working capital optimization.

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