TOSHIBA TEC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥257.65B
• Operating Income: ¥-1.07B
• Net Income: ¥-10.70B
• EPS: ¥-186.63

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Verdict: FY2026 Q2 was weak, with a continued operating loss and a deep net loss, despite some improvement in operating profitability amid a double-digit revenue decline. Revenue fell 10.9% YoY to 2,576.6, reflecting softer demand and/or delayed project timing in core retail/printing solutions. Gross profit was 987.1, yielding a gross margin of 38.3%, which is respectable but insufficient to cover elevated SG&A. SG&A of 997.8 slightly exceeded gross profit, resulting in an operating loss of 10.8; however, operating income improved substantially YoY (company-reported +60.3%), indicating underlying cost control or mix improvements. Operating margin printed at approximately -0.4%, which we estimate improved by roughly 50 bps YoY despite lower sales (based on reported OI YoY change and the revenue decline; exact prior-period data not disclosed). Ordinary loss widened to 34.3 (YoY +132.4% per disclosure), driven by higher non-operating expenses (35.7) outweighing non-operating income (12.2). Net income deteriorated to a loss of 98.9, with an unusual negative effective tax rate (-37.1%) indicating tax expense despite a pre-tax loss (likely non-deductible items, valuation allowance changes, or geographical tax mix). EBITDA was positive at 82.3 (3.2% margin), suggesting cash earnings capacity exists, but interest coverage on an EBIT basis was weak at -1.42x, highlighting pressure from operating losses relative to interest expense. Cash flow from operations was negative at 106.8, modestly worse than the net loss, putting near-term liquidity under pressure. Leverage is high: debt-to-equity (total liabilities/equity) at 2.22x and financial leverage at 3.22x, amplifying equity volatility and constraining flexibility. Liquidity is adequate but not comfortable, with a current ratio of 1.16x and a quick ratio of 0.82x, implying reliance on inventory conversion and receivable collections. Asset efficiency remains modest (asset turnover 0.761), and ROE was -9.4% per DuPont, driven primarily by negative margins rather than leverage or turnover. ROIC was -1.2%, well below a 5% warning threshold, indicating value destruction in the period. OCF/Net income was 1.08x (both negative), which avoids a formal quality flag but still signals cash burn, not cash conversion. With capex of 48.8, proxy FCF (OCF - capex) appears roughly -155–156, suggesting self-funding of any dividends would be challenging absent improvement (dividend data not disclosed). Forward-looking, margin repair via SG&A control and mix, working capital normalization, and stabilization of non-operating items are essential to restore positive earnings and cash flow.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-3.8%) × 0.761 × 3.22 ≈ -9.4%. The largest driver of deterioration is the negative net profit margin, as asset turnover is moderate and leverage is high but relatively stable. Business rationale: gross margin at 38.3% is not weak, but SG&A (997.8) slightly exceeds gross profit (987.1), pushing operating income negative; additionally, non-operating expenses (35.7) weighed on ordinary income despite 12.2 of non-operating income. Non-operating headwinds likely include higher interest and other expenses, as interest expense was 7.6, and potentially currency/other items embedded in non-operating costs. Sustainability: the improvement in operating income (reported +60.3% YoY) suggests cost actions and/or mix benefits could be sustainable, but ongoing revenue pressure (-10.9% YoY) and ordinary loss indicate recovery is not yet secure. We estimate operating margin improved by roughly 50 bps YoY to -0.4% (approximation due to incomplete prior data), implying some operating leverage despite lower revenue; however, SG&A still outpaced gross profit. Concerning trends: revenue contraction alongside SG&A running above gross profit indicates cost absorption pressure; interest coverage at -1.42x underscores earnings sensitivity to financing costs.

Growth Assessment

Revenue declined 10.9% YoY to 2,576.6, suggesting end-market softness and/or delayed orders in retail solutions and printing systems. Despite the top-line decline, operating income improved (loss narrowed), implying better pricing/mix, cost actions, or service content; however, ordinary income deteriorated due to higher non-operating expenses. Gross margin at 38.3% indicates value-added content remains, but SG&A intensity prevented operating break-even. Profit quality is mixed: EBITDA positive (82.3) but EBIT negative; tax expense despite losses introduces volatility to net income. Near-term outlook hinges on backlog conversion, inventory normalization, and stabilization of non-operating items (interest, other). Without disclosed order/backlog data, we assume cautious revenue trajectory; a seasonal 2H recovery would be needed to return to profitability. Given ROIC at -1.2%, incremental capital should be tightly allocated to higher-return projects. Watch for actions to resize cost base relative to current demand and potential price/mix improvements in solutions and services.

Financial Health

Liquidity: current ratio 1.16x (adequate but below the >1.5x comfort benchmark); quick ratio 0.82x (below 1.0), indicating dependence on inventory turnover and collections—monitor for liquidity strain if OCF remains negative. Solvency: debt-to-equity (liabilities/equity) is high at 2.22x (warning threshold >2.0), and financial leverage is 3.22x; however, balance-sheet interest-bearing debt identified totals ~137.0 (short-term 37.4, long-term 99.6), suggesting a meaningful portion of liabilities are non-interest-bearing operating liabilities. Interest coverage is weak at -1.42x on EBIT, pointing to debt-service vulnerability if losses persist. Maturity mismatch: current assets 2,024.5 vs current liabilities 1,748.0 implies positive working capital of 276.5; cash and deposits (276.4) comfortably exceed short-term loans (37.4), mitigating immediate refinancing risk, though broader current liabilities require ongoing operating cash generation. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

OCF/Net income is 1.08x, which avoids a sub-0.8 quality flag but both OCF (-106.8) and net income (-98.9) are negative—indicating cash burn rather than true cash conversion. Proxy FCF (OCF - capex) is approximately -155.6, given capex of 48.8 and absent full investing CF detail; this signals insufficient internal funding for dividends or deleveraging without improvement. The negative OCF likely reflects both core operating losses and working capital usage; however, with no breakdown (AR, inventory, AP changes) we cannot isolate timing vs structural impacts. Financing CF was -43.2 (net outflow), suggesting debt repayment and/or shareholder returns; share repurchases were negligible (-0.03), and dividends are not disclosed. No clear signs of aggressive working capital manipulation can be concluded from available data, but the combination of revenue decline and inventory/receivable positions warrants monitoring.

Dividend Sustainability

Dividend data (DPS, total dividends) are not disclosed; a calculated payout ratio of -26.2% is not economically meaningful with negative earnings. With OCF negative (-106.8) and proxy FCF roughly -155.6, internal coverage of any cash dividends would be unsustainable absent a swift turnaround or reliance on balance sheet capacity. Given leverage of 2.22x (liabilities/equity), preservation of cash is likely prioritized over incremental distributions. Policy outlook likely hinges on restoring positive OCF and EBIT; until then, dividend visibility is low based on the provided information.

Risk Assessment

Business Risks:

• Demand softness or project delays in retail solutions/printing leading to a 10.9% YoY revenue decline
• Inability to reduce SG&A below gross profit, keeping operating margin negative (-0.4%)
• Execution risk in cost restructuring and mix improvements despite reported YoY operating income improvement
• Supplier and component cost volatility impacting gross margin (38.3%)

Financial Risks:

• High leverage: D/E (liabilities/equity) 2.22x (warning)
• Weak interest coverage: -1.42x EBIT/interest, exposing the company to rate and refinancing risks
• Negative OCF (-106.8) and proxy FCF (~-155.6) stressing liquidity over time
• Negative effective tax rate (-37.1%) introducing earnings volatility due to non-deductible items or valuation allowances

Key Concerns:

• ROIC at -1.2% indicates value destruction and sub-cost-of-capital returns
• Ordinary loss (-34.3) worsened despite improved operating income, driven by higher non-operating expenses (35.7)
• Quick ratio at 0.82x signals reliance on inventory conversion to meet short-term obligations
• Data limitations: lack of segment detail, backlog/orders, and full cash flow breakdown constrains visibility into recovery drivers

Investment Implications

Key Takeaways:

• Top line fell 10.9% YoY to 2,576.6, yet operating loss narrowed to 10.8, implying some cost/mix progress
• Operating margin around -0.4%, likely improved by roughly 50 bps YoY despite sales decline
• Ordinary and net losses widened due to heavier non-operating expenses and tax expense despite losses
• OCF negative at -106.8; proxy FCF deeply negative after 48.8 of capex
• Balance sheet leverage elevated (2.22x liabilities/equity) with weak interest coverage (-1.42x)
• ROE -9.4% and ROIC -1.2% underscore profitability challenges requiring operational turnaround

Metrics to Watch:

• Sequential operating margin and SG&A-to-sales ratio
• Working capital trends (AR days, inventory turns, AP days) and OCF trajectory
• Non-operating expense run-rate and interest burden
• Order intake/backlog and pricing/mix in solutions and services
• ROIC vs WACC and EBITDA margin progression toward positive EBIT coverage

Relative Positioning: Within Japan’s industrial electronics/retail solutions peers, Toshiba Tec currently screens weaker on earnings quality (negative EBIT, negative OCF) and leverage (D/E>2), with modest gross margin resiliency but insufficient SG&A flexibility; turnaround evidence would be needed to close the gap with peers exhibiting positive EBIT and cash generation.

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