Makita Corporation FY2027 Q1 Earnings Report

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Executive Summary

Quarterly performance advanced on higher revenue and earnings, while the operating margin continued to improve. Revenue was ¥2065.5B (+10.7% YoY), Operating Income was ¥305.6B (+17.2%), Profit Before Tax was ¥326.4B (+21.5%), and Net Income attributable to owners of the parent was ¥228.7B (+18.6%). The primary drivers of revenue growth were a recovery in North American demand, the effects of price revisions, and foreign exchange translation gains. Earnings growth was driven by an improved cost ratio and a significant recovery in the profitability of the North American segment. Meanwhile, although the European segment posted higher revenue, Operating Income declined, indicating that differences in regional earnings structures affected the company-wide profit margin.

Factors Affecting Performance

【Revenue】Revenue was ¥2065.5B, representing a +10.7% YoY increase. By segment, Europe accounted for more than half at ¥1040.4B (50.4% of total, +10.8%), followed by Japan at ¥384.3B (+0.9%, 18.6% of total), Other at ¥318.6B (+18.3%), North America at ¥233.1B (+18.4%), and Asia at ¥89.1B (+11.3%). Growth in North America, Asia, and Other lifted the overall revenue growth rate, while Japan remained nearly flat.

【Profit and Loss】Operating Income was ¥305.6B (+17.2% YoY), and the operating margin improved to 14.8% from 13.9% in the prior year, a +0.9pt improvement. The gross margin improved to 39.3% from 37.0%, a +2.3pt improvement, supported by a more stable cost environment and pricing measures. Meanwhile, the SG&A ratio rose to 24.5% from 23.0%, a +1.5pt increase, absorbing part of the gross margin improvement. By segment, North America improved significantly to ¥46.0B (+1305.5% YoY; 19.7% margin), becoming the primary driver of company-wide earnings growth. In contrast, Europe declined to ¥80.3B (-21.1%; 7.7% margin), and Japan declined to ¥67.1B (-26.4%; 17.5% margin), apparently affected by price competition and higher promotional expenses. Asia maintained a high profit level at ¥68.3B (+13.7%); however, this figure is significantly affected by the structure of intersegment transactions, including supplies to other regions, and caution is required when interpreting it as a simple profit margin against external revenue. Profit Before Tax was boosted by financial income of ¥23.9B exceeding financial expenses of ¥3.1B, while the effective tax rate was 29.7% (28.2% in the prior year). Overall, the company reported higher revenue and earnings.

Segment Analysis

Europe is the core segment, accounting for 50.4% of total revenue, but its Operating Income declined to ¥80.3B (-21.1% YoY), with the profit margin falling to 7.7% from approximately 10.3% in the prior year, making it a drag on profitability. North America posted revenue of ¥233.1B (+18.4%) and a significant improvement in Operating Income to ¥46.0B (+1305.5% YoY), with the profit margin recovering to 19.7%. Japan’s revenue was nearly flat at ¥384.3B (+0.9%), while Operating Income declined to ¥67.1B (-26.4%), reducing the profit margin to 17.5%. Asia maintained a high profit level, with revenue of ¥89.1B (+11.3%) and Operating Income of ¥68.3B (+13.7%); however, intersegment internal revenue significantly exceeds external revenue, and the figures reflect its function as a production and supply base. Company-wide margin improvement was driven by the sharp recovery in North America, while deteriorating profitability in Europe and Japan served as an offsetting factor.

Key Financial Indicators

【Profitability】The operating margin improved to 14.8% from 13.9%, a +0.9pt improvement, and the gross margin improved to 39.3% from 37.0%, a +2.3pt improvement. In contrast, the SG&A ratio rose to 24.5% from 23.0%, a +1.5pt increase. The net profit margin, based on net income attributable to owners of the parent, improved to 11.1% from 10.3%, a +0.8pt improvement.【Cash Quality】Operating Cash Flow was ¥317.7B, approximately 1.4 times net income attributable to owners of the parent of ¥228.7B, indicating a favorable level of cash generation relative to quarterly earnings.【Investment Efficiency】ROE was 2.3% on a quarterly actual basis before annualization, calculated based on quarterly profit and period-end equity of ¥1139.7B.【Financial Soundness】The equity ratio was 84.5%, nearly flat compared with 84.4% in the prior year. With current liabilities remaining limited relative to current assets of ¥8086.7B, the financial foundation has generally remained robust.

Cash Flow Analysis

Operating Cash Flow was ¥317.7B, a significant increase from ¥142.0B in the prior year. In addition to the increase in Profit Before Tax, the decrease in accounts receivable, representing a cash inflow of ¥75.4B, and the increase in accounts payable, representing a cash inflow of ¥28.4B, contributed to the improvement. Inventories were a source of cash outflow of ¥10.9B, and inventory levels remain high. Investing Cash Flow was positive at ¥14.2B, primarily because withdrawals from time deposits exceeded new deposits, while necessary investments, including the acquisition of property, plant and equipment (-¥40.5B), continued. Financing Cash Flow was -¥379.4B, with dividend payments of ¥335.9B and share repurchases of ¥40.8B as the primary sources of cash outflow. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was ¥331.9B, nearly covering dividend payments for the quarter. Cash and cash equivalents were ¥2563.6B at period-end, nearly unchanged from ¥2573.9B at the beginning of the period.

Earnings Quality

The company’s earnings for the quarter were primarily generated by recurring business activities, and no items equivalent to extraordinary gains or losses were identified in the disclosures. In non-operating income and expenses, financial income of ¥23.9B exceeded financial expenses of ¥3.1B, thereby contributing to higher Profit Before Tax. However, this primarily comprised interest and dividend income and foreign exchange-related gains and should be distinguished from the earning power of the core business. Operating Cash Flow at approximately 1.4 times net income attributable to owners of the parent indicates that earnings were supported by cash generation; from an accrual perspective, earnings quality can be considered favorable. Meanwhile, comprehensive income of ¥470.1B significantly exceeded net income of ¥228.7B. The difference was mainly attributable to foreign currency translation adjustments of foreign operations (+¥163.7B) and valuation gains on equity financial instruments measured at fair value through other comprehensive income (+¥76.9B). These items have a non-recurring nature and are subject to foreign exchange and market fluctuations, which warrants attention.

Earnings Forecast and Guidance

Against the full-year forecast of Revenue of ¥8200B, Operating Income of ¥1100B, net income attributable to owners of the parent of ¥810B, and EPS of ¥314.22, progress in Q1 was 25.2% for Revenue, 27.8% for Operating Income, and 28.2% for net income attributable to owners of the parent. Each indicator exceeded the 25% benchmark for evenly distributed quarterly progress, with profit indicators particularly ahead of schedule. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The company’s basic profit allocation policy is a consolidated payout ratio of at least 50%. However, the full-year forecast DPS of ¥79, calculated against forecast EPS of ¥314.22, implies a payout ratio of approximately 25.1%, which is a provisional figure below the policy level. The amount of the year-end dividend is scheduled to be determined by the Board of Directors in April 2027 and remains undecided at present. Dividend payments during the quarter were ¥335.9B, up from ¥243.9B in the same period of the prior year due to the reflection of the previous fiscal year’s actual dividend. Combined with share repurchases of ¥40.8B, the total return amount was ¥376.7B, exceeding quarterly Free Cash Flow of ¥331.9B. However, the company’s ample cash on hand of ¥2563.6B at period-end has prevented any funding constraints.

Risk Factors

1. Regional earnings concentration: The European segment accounts for 50.4% of Revenue, while its Operating Income declined -21.1% YoY and its profit margin fell to 7.7%. Accordingly, trends in European demand and the competitive environment have a significant impact on company-wide earnings.

2. Inventory levels: Inventories were ¥3859.8B, accounting for 32.4% of total assets, and represented a cash outflow factor of ¥10.9B during the quarter in Operating Cash Flow. The structure carries a relatively high risk of valuation losses and discounted sales when demand fluctuates.

3. Foreign exchange sensitivity: Foreign currency translation adjustments of foreign operations reached ¥163.7B during the quarter, doubling from ¥78.6B in the same period of the prior year. This was the primary reason for the gap between comprehensive income of ¥470.1B and net income of ¥228.7B, and the impact of foreign exchange fluctuations on the financial statements remains an area requiring close attention.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Return

The company’s Operating Margin and Net Profit Margin both exceed the industry median and are positioned at a high level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median but has not reached the upper end of the IQR (14.8%), placing it in the upper group within the industry.

※Source: Company compilation

Key Points in the Earnings Report

1. The gross margin improved to 39.3% (+2.3pt YoY), indicating that pricing measures and a more stable cost environment supported margin improvement. However, the SG&A ratio increased by +1.5pt, offsetting part of the benefit from the gross margin improvement.

2. Progress against the full-year plan was 27.8% for Operating Income and 28.2% for net income attributable to owners of the parent, both running ahead of the quarterly evenly distributed progress benchmark of 25%.

3. By segment, North America’s Operating Income recovered significantly by +1305.5% YoY, while Europe and Japan posted lower earnings. Differences in regional earnings structures have therefore emerged as a factor driving fluctuations in company-wide performance.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥3,738–¥3,960 at ±1% for the cost of equity, and ¥3,844–¥3,848 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used, resulting in a timing difference from the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future share prices)

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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 discretion and responsibility, after consulting with a professional advisor as necessary.

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