NSK Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥412.25B
• Operating Income: ¥16.47B
• Net Income: ¥9.75B
• EPS: ¥19.06

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

NSK Ltd. (6471) reported FY2026 Q2 consolidated results under IFRS showing modest top-line growth and a sharp improvement in profitability. Revenue rose 3.7% YoY to 4,122.5, while operating income increased 69.7% YoY to 164.67, indicating substantial operating leverage and improved cost discipline. Gross profit of 857.06 implies a gross margin of 20.8%, while SG&A of 726.72 equates to 17.6% of sales, leaving an operating margin of roughly 4.0%. Net income surged to 93.19 (+373.3% YoY), with profit before tax of 160.61 and an effective tax rate of 22.9%, suggesting minimal non-operating drag in the period. EBITDA was 431.66, consistent with depreciation and amortization of 266.99, highlighting a capital-intensive profile. DuPont analysis indicates a low net margin (2.3%), low asset turnover (0.317x), and moderate financial leverage (1.91x), culminating in an ROE of 1.4%, which remains below cost of equity for most industrials. Despite the earnings rebound, operating cash flow was only 54.78, or 0.59x of net income, indicating weak cash conversion likely driven by working capital needs, notably inventory at 1,858.78. Free cash flow was slightly negative at -11.00 as capex of 217.17 more than absorbed the modest OCF. The balance sheet is relatively solid with total assets of 13,010.88, total liabilities of 5,503.54, and total equity of 6,807.17, implying an equity ratio of 50.9% and a debt-to-equity ratio of 0.81x. Total comprehensive income was 196.49, well above net income, implying favorable OCI movements (likely FX or securities valuation), which supported equity in the period. Liquidity metrics such as current and quick ratios are not calculable due to unreported line items, though current assets are sizable at 6,366.62. Dividend outflows were 73.34 in cash flow, and the calculated payout ratio is high at 182.4%, raising questions about sustainability given negative FCF, though period timing effects may distort the ratio. Book value per share is estimated at 1,391 JPY, reflecting a strong capital base relative to EPS of 19.06 JPY in the half. Strategically, demand from auto and industrial end-markets seems stable to modestly improving, with cost pass-through and mix likely aiding margins. Data gaps (notably non-operating details, debt composition, DPS) limit precision, but the overall trajectory shows margin recovery, cautious cash generation, and a still-conservative balance sheet. The key watchpoints are cash conversion, inventory normalization, and the alignment of dividend policy with FCF.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 2.3%
• asset_turnover: 0.317x
• financial_leverage: 1.91x
• calculated_ROE: 1.4%
• interpretation: Low net margin and low asset turnover are the main drags on ROE; leverage is moderate and not the primary driver. margin_quality:
• gross_margin: 20.8% (gross profit 857.06 / revenue 4,122.5)
• operating_margin: 4.0% (operating income 164.67 / revenue 4,122.5)
• EBITDA_margin: 10.5% (EBITDA 431.66 / revenue 4,122.5)
• SG&A_ratio: 17.6% (726.72 / 4,122.5)
• commentary: YoY operating income growth (+69.7%) far outpaced revenue growth (+3.7%), implying improved cost absorption and/or pricing/mix. The spread between gross and operating margin (approximately 16.8pp) indicates SG&A remains heavy but appears better controlled. operating_leverage: High in the period: a small increase in revenue translated into a large increase in operating profit, consistent with fixed-cost dilution and efficiency gains. Further upside depends on sustaining pricing and cost control amid inventory normalization.

Growth Assessment

revenue_sustainability: Revenue growth of 3.7% YoY suggests stable demand across auto and industrial segments, with potential FX and pricing support. No order/backlog data disclosed; sustainability into H2 depends on global auto production trends and industrial capex cycles. profit_quality: Operating income +69.7% YoY and net income +373.3% YoY indicate margin recovery and cleaner below-OP line items. However, cash conversion was weak (OCF/NI 0.59x), tempering the quality assessment pending working capital normalization. outlook: If mix/pricing and cost control persist, mid-single digit revenue growth could yield further margin expansion. Risks include demand softness in China/EU, raw material/energy costs, and FX volatility. Positive OCI in the quarter (TCI 196.49 > NI 93.19) strengthens equity but is non-cash.

Financial Health

liquidity: Operating CF 54.78 was modest relative to EBITDA 431.66, pressured by working capital. Current and quick ratios are not calculable due to unreported current liabilities; nonetheless, current assets are large at 6,366.62, and cash & equivalents were 1,382.53. solvency: Equity ratio 50.9% and debt-to-equity 0.81x suggest a balanced capital structure. Interest coverage is not calculable due to unreported interest expense, but EBITDA and EBIT cushions appear adequate for a typical bearings manufacturer. capital_structure: Total liabilities 5,503.54 vs equity 6,807.17 indicate conservative leverage. Lack of detail on interest-bearing debt tenor and cost limits a more granular assessment of refinancing risk.

Cash Flow Quality

earnings_quality: OCF/NI at 0.59x indicates earnings not fully backed by cash in the period, likely due to working capital build. EBITDA to OCF conversion was weak (12.7%), highlighting inventory/receivables dynamics. FCF_analysis: Free cash flow was -11.00 (OCF 54.78 minus capex 217.17), reflecting ongoing investment needs and timing of cash collections. Investing CF of -65.78 also includes other items beyond capex (e.g., asset sales/acquisitions) not detailed. working_capital: Inventories stood at 1,858.78, sizable relative to revenue run-rate, suggesting room for normalization. Accounts receivable and payables were unreported, limiting ratio analysis (DSO/DPO/DIO).

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is 182.4%, which appears elevated relative to earnings for the period; cash dividends paid in CF were 73.34 versus NI of 93.19 (~79% on a cash basis). The discrepancy may reflect timing/annualization effects. FCF_coverage: FCF coverage was -0.06x, indicating dividends were not covered by free cash flow this period. Sustained coverage would require improved OCF and/or lower capex. policy_outlook: With an equity ratio of 50.9% and sizable cash balances, near-term dividends are serviceable, but continuation at a high payout amid negative FCF would rely on a rebound in cash conversion. Disclosure on DPS and payout policy is N/A; monitoring guidance and interim DPS is key.

Risk Assessment

Business Risks:

• Cyclical exposure to global auto production and industrial capital spending
• Pricing pressure and competition in bearings and precision components
• Raw material (steel) and energy cost volatility impacting gross margin
• Demand softness risk in China/Europe and supply-chain disruptions
• FX volatility affecting reported revenue and margins
• Product mix shift (EVs, electrification) requiring ongoing R&D and capex

Financial Risks:

• Weak OCF-to-earnings conversion and inventory build
• Negative FCF in the period amid sustained capex requirements
• Limited disclosure on debt structure and interest cost (interest coverage N/A)
• Potential pension or other long-term obligations not detailed in period data

Key Concerns:

• Sustainability of recent margin gains if volume growth slows
• Dividend coverage given negative FCF and high calculated payout ratio
• Working capital normalization needed to improve cash generation

Investment Implications

Key Takeaways:

• Top-line grew 3.7% YoY; operating profit up 69.7% indicates strong operating leverage.
• ROE at 1.4% remains low due to thin margins and low asset turnover despite moderate leverage.
• Cash conversion was weak (OCF/NI 0.59x), driving slightly negative FCF (-11.00).
• Balance sheet resilience: equity ratio 50.9%, debt-to-equity 0.81x.
• Dividend sustainability hinges on cash flow recovery; calculated payout appears high.
• Positive OCI boosted comprehensive income and equity but is non-cash.

Metrics to Watch:

• OCF/NI and EBITDA-to-OCF conversion
• Inventory levels and DIO (once disclosed)
• Operating margin trajectory and SG&A ratio
• Capex versus maintenance level and ROIC on growth investments
• Net debt/EBITDA and interest expense disclosure
• FX rates and price/mix in auto and industrial segments
• DPS guidance and payout framework

Relative Positioning: Within Japanese bearing and precision component peers (e.g., NTN, JTEKT, MinebeaMitsumi), NSK shows improving profitability but still modest margins and ROE; balance sheet is comparatively conservative, leaving room to prioritize operational improvement and cash conversion.

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