Makita (6586) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The key takeaway from these results is that, while revenue remained at the same level as the previous year, both operating income and net income declined, indicating a phase of declining earnings without revenue growth. Revenue was ¥5,687.8B (+0.0% YoY), operating income was ¥762.5B (△7.4%), profit before tax was ¥785.4B (△6.2%), and net income was ¥575.7B (△7.2%). The operating margin was 13.4%, down from the same period of the previous year, with the decline in cost absorption capacity amid flat revenue being the primary reason for the lower margin.

Factors Affecting Performance

【Revenue】Revenue was ¥5,687.8B, essentially flat at +0.0% YoY. The top line is not in a clear expansion phase, and no growth driver has emerged in terms of volume, pricing, or mix.

【Profit and Loss】Cost of sales was ¥3,615.9B, while gross profit was ¥2,071.9B, securing a gross margin of 36.4%. Meanwhile, SG&A expenses increased to ¥1,309.4B (23.0% of revenue), and operating income contracted to ¥762.5B (△7.4%). Financial income of ¥56.6B exceeded financial expenses of ¥33.7B and contributed positively to net financial income and expenses; however, profit before tax was ¥785.4B (△6.2%) and net income was ¥575.7B (△7.2%), continuing the declining earnings trend. As profit declined despite flat revenue, the situation can be characterized as a phase of substantive earnings decline without a decrease in revenue—namely, declining earnings without revenue growth (flat revenue and declining earnings).

Key Financial Indicators

【Profitability】The operating margin of 13.4%, net margin of 10.1%, and gross margin of 36.4% all remained at high levels; however, the operating margin declined by approximately 1.1pt YoY, indicating a trend toward margin contraction.【Cash Flow Quality】Operating cash flow (OCF) was ¥754.0B, approximately 1.31 times net income of ¥575.7B, demonstrating cash generation exceeding accounting earnings.【Investment Efficiency】ROE was 5.7%, decomposed into net margin of 10.1% × total asset turnover of 0.48x × financial leverage of 1.18x. A substantial equity base and low asset turnover are weighing down ROE. Inventories of ¥3,866.4B accounted for 32.4% of total assets and represent a major constraint on asset efficiency.【Financial Soundness】An equity ratio of 84.2% and cash and cash equivalents of ¥2,851.1B indicate an extremely conservative financial base, with limited concern regarding short-term liquidity.

Cash Flow Analysis

Operating cash flow was ¥754.0B, down △32.0% YoY, but remained above net income of ¥575.7B, indicating sound cash backing for earnings. In terms of working capital, the collection of accounts receivable and notes receivable contributed to cash inflows, while inventories increased by ¥161.3B and became a source of cash outflows. Investing cash flow was limited to an outflow of ¥11.3B, resulting in free cash flow of ¥742.7B. Financing cash flow was an outflow of ¥609.5B, primarily due to dividend payments of ¥295.0B and the repurchase of treasury stock of ¥200.0B. Free cash flow exceeded the combined ¥495.0B of dividends and share repurchases, indicating that shareholder returns during the period were funded by internally generated funds. Cash and cash equivalents accumulated to ¥2,851.1B, demonstrating ample financial capacity.

Earnings Quality

Operating cash flow of ¥754.0B exceeded net income of ¥575.7B, and earnings quality can therefore be assessed as sound from the perspective of cash backing. Financial income of ¥56.6B exceeded financial expenses of ¥33.7B, with non-operating income and expenses making a certain contribution to recurring earnings. Comprehensive income was ¥1,298.4B, substantially exceeding net income; however, the primary component of other comprehensive income was foreign currency translation adjustments for foreign operations, representing changes in equity due to currency movements rather than an improvement in the earnings power of the core business. The decline in operating income was attributable to the rise in the SG&A ratio and the slowdown in gross profit growth, and should be viewed as a structural deterioration in profitability rather than a temporary factor.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥7,600.0B, operating income of ¥1,000.0B (△6.6% YoY), and EPS of ¥274.87. The Q3 year-to-date progress rates were 74.8% for revenue and 76.2% for operating income, both near the standard quarterly progress benchmark of 75%. The revenue required in Q4 is approximately ¥1,912.2B, while the operating income required is approximately ¥237.5B. Since the required operating margin of 12.4% is below the year-to-date actual margin of 13.4%, the hurdle to achieving the forecast is not excessively high from a profitability perspective.

Shareholder Returns

The Q2 dividend was ¥20.00 per share, and dividend payments during the period were ¥295.0B. The payout ratio against net income of ¥575.7B remained low at approximately 9.7%, indicating high sustainability when dividends are considered alone. Meanwhile, including the ¥200.0B share repurchase, total shareholder returns amounted to ¥495.0B, resulting in a total return ratio of approximately 86.1% against net income. Free cash flow of ¥742.7B exceeded total returns, indicating that shareholder returns during the period were fully funded by internal funds. However, the total return ratio was slightly above the general benchmark of 80%, and if earnings continue to decline, the flexibility of the return scale could become an issue.

Risk Factors

1. Inventory holding risk: Inventories were ¥3,866.4B, accounting for 32.4% of total assets, while annualized inventory days had lengthened to approximately 293 days. This could pressure future gross margins through impairment losses or discounted sales when demand fluctuates.

2. Profitability deterioration risk: While revenue was flat YoY, operating income declined by 7.4%, and cost absorption capacity has weakened, as evidenced by the SG&A ratio rising to 23.0%. Maintaining and recovering margins in a flat-revenue environment remains a challenge.

3. Foreign exchange sensitivity: The primary component of other comprehensive income was foreign currency translation adjustments for foreign operations, creating a structure in which the yen-converted value of equity is susceptible to currency fluctuations. Changes in comprehensive income should therefore be evaluated separately from the earnings power of the core business.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net margin exceed the industry median, placing profitability at a high level within the industry.

※Source: Company compilation

Key Takeaways from the Results

1. The operating margin of 13.4% and net margin of 10.1% remain above the industry median, but both have declined by approximately 1pt YoY, making the ability to recover margins a key focus going forward.

2. OCF is 1.31 times net income, indicating sound cash generation; however, annualized inventory days have reached approximately 293 days, and improving working capital efficiency is an issue for both asset turnover and ROE.

3. The progress rate against the full-year forecast is 76.2% for operating income, exceeding standard quarterly progress, while the operating margin required in Q4 is below the year-to-date actual margin, suggesting room to achieve the plan from a profitability perspective.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,536–¥3,744 at ±1% in the cost of equity, and ¥3,632–¥3,641 at ±0.1 in ω.

Notes:

• 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 gap relative to the full-year forecast).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate base 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, nor does it forecast or guarantee future share prices.)

---

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.

---End of Report---