Fujitsu Limited FY2027 Q1 Earnings Report

Quick View

Executive Summary

Operating income increased significantly by +56.9% year on year in Q1, resulting in earnings that clearly demonstrated an improvement in core earning power. Revenue was ¥7,793.8B (+3.9% YoY), operating income was ¥525.3B (+56.9%), and profit before tax was ¥594.5B (+60.4%). Net income attributable to owners of the parent was ¥401.3B, a decrease of -76.6% year on year; however, this was primarily due to the reaction to the previous year’s inclusion of profit and loss from discontinued operations (¥1,463.4B), including the sale of shares in a subsidiary. Basic quarterly earnings per share from continuing operations were ¥23.13 (¥15.66 in the same period of the previous year), representing an increase of +47.7%, indicating that underlying earning power is expanding.

Factors Affecting Earnings

【Revenue】Service Solutions accounted for 70.1% of the revenue mix and led overall performance with revenue growth of +7.6%. Hardware Solutions accounted for 24.7% of the mix and posted only modest growth of +2.9%, while Ubiquitous Solutions contracted to 4.4% of the mix and recorded a significant revenue decline of -28.3%.

【Profitability】The operating margin improved to 6.7% from 4.5% in the previous year, an improvement of +2.2pt. The gross margin was 33.6% (33.3% in the previous year), while the SG&A expense ratio was 29.2% (28.8% in the previous year). Other income increased significantly to ¥204.4B (¥20.4B in the previous year), which boosted operating income. Although profit before tax expanded to ¥594.5B (+60.4%), the effective income tax rate increased to 31.5% (24.0% in the previous year), limiting the growth in net income from continuing operations to +44.6% relative to the increase in profit before tax. Net income attributable to owners of the parent declined by -76.6% due to the reaction to the previous year’s discontinued operations, including gains on the sale of a subsidiary; however, on a continuing-operations basis, earnings increased substantially, and the overall result can be characterized as higher revenue and higher profit.

Segment Analysis

Adjusted operating income for Service Solutions was ¥628.0B (¥478.4B in the previous year), and the adjusted operating margin improved to 11.4% (9.3% in the previous year), making the segment the core driver of company-wide profit growth. Hardware Solutions recorded adjusted operating loss of -¥37.4B (adjusted operating income of +¥13.4B in the previous year), falling from profitability into the red. Adjusted operating income for Ubiquitous Solutions decreased to ¥44.7B (¥82.4B in the previous year), although its adjusted operating margin remained in double digits at 13.0% (17.2% in the previous year). Company-wide operating income of ¥525.3B includes one-time items comprising +¥0.03B in business reorganization and business-structure reform expenses and -¥23.8B in M&A-related expenses.

Key Financial Indicators

【Profitability】The operating margin improved to 6.7% (4.5% in the previous year), while the net margin based on net income attributable to owners of the parent was 5.1% (22.9% in the previous year; however, the previous year included the special factor of discontinued operations). 【Cash Flow Quality】Operating cash flow (OCF) was ¥2,266.5B, equivalent to 5.6 times net income attributable to owners of the parent of ¥401.3B, indicating a favorable level of earnings conversion into cash. 【Investment Efficiency】ROE was 2.0% (quarterly basis, before annualization), meaning that capital efficiency remains low in absolute terms. 【Financial Soundness】The equity ratio was 61.5% (59.4% in the previous year, +2.1pt), while cash and cash equivalents stood at ¥5,979.3B, indicating ample liquidity.

Cash Flow Analysis

Operating cash flow was ¥2,266.5B, remaining broadly flat year on year (-0.1%). Although the collection of trade receivables contributed positively by ¥4,456.0B, this was offset by increases in contract assets (-¥876.8B) and inventories (-¥644.1B). Investing cash flow was -¥121.8B, a significant decrease from the positive ¥1,749.7B recorded in the previous year, which included proceeds from the sale of a subsidiary. Capital expenditures were -¥298.7B (-¥309.7B in the previous year), remaining broadly flat. Financing cash flow was -¥716.4B, including dividend payments of -¥607.2B (-¥248.8B in the previous year), which increased. Free cash flow was ample at ¥2,144.7B, more than sufficient to cover capital expenditures and dividend payments. Cash and cash equivalents at the end of the period were ¥5,979.3B.

Earnings Quality

Current-period operating income includes one-time items such as M&A-related expenses of -¥23.8B; adjusted operating income excluding these items was ¥549.1B (¥351.2B in the previous year). Net income in the same period of the previous year included ¥1,463.4B of profit from discontinued operations, including gains on the sale of shares in a subsidiary; therefore, caution is required when making a simple comparison with current-period net income attributable to owners of the parent of ¥401.3B. Comprehensive income was ¥657.4B, exceeding net income of ¥407.2B by ¥250.2B, primarily due to remeasurement gains on defined benefit plans of ¥182.6B. Although operating cash flow significantly exceeded net income, increases in contract assets and inventories suggest an expansion of accruals (uncollected accounting profits), requiring monitoring of future cash conversion trends.

Earnings Forecast and Guidance

Progress against the full-year company forecasts was 22.2% for revenue, 12.7% for operating income, and 12.9% for net income attributable to owners of the parent, all below the simple one-quarter benchmark of 25%. The full-year operating income forecast is ¥4,150B (+19.1% YoY), the EPS forecast is ¥182.43, and the dividend forecast is ¥25. As of the current quarter, there has been no revision to the earnings or dividend forecasts. The company’s plan is typically weighted toward the second half of the fiscal year, and improvements in the profitability of Hardware Solutions and progress in optimizing inventories and contract assets will be key to achieving the full-year targets.

Shareholder Returns

The annual dividend forecast is ¥25, and the payout ratio based on forecast EPS of ¥182.43 is 13.7%. Share repurchases were minimal at ¥0.03B, meaning that shareholder returns are centered on dividends and that the total return ratio is approximately the same as the payout ratio. Against operating cash flow of ¥2,266.5B and free cash flow of ¥2,144.7B, dividend payments of ¥607.2B during the current quarter were more than adequately covered. Considering the level of cash and cash equivalents of ¥5,979.3B, dividend sustainability remains favorable; however, the working-capital burden arising from increases in inventories and contract assets requires ongoing monitoring.

Risk Factors

1. Deterioration in Hardware Solutions profitability: Adjusted operating performance declined from +¥13.4B in the previous year to -¥37.4B in the current period. Despite revenue growth of +2.9%, profitability deteriorated, suggesting the impact of the cost structure and price competition.

2. Increase in inventories: Inventories increased to ¥2,687.4B (¥2,040.9B in the previous year, +31.7%). Higher inventory levels may entail an increased risk of valuation losses and a greater working-capital burden.

3. Increase in contract assets: Contract assets increased to ¥3,061.2B (¥2,176.8B in the previous year, +40.6%). The time lag between the early recognition of project progress and billing and collection may be widening.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net margin are below the industry median, positioning the company in the middle to somewhat lower range within the industry.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, indicating relatively moderate growth from a revenue-growth perspective.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin improved from 4.5% in the previous year to 6.7%, an improvement of +2.2pt, primarily due to the increase in the adjusted operating margin of Service Solutions (9.3%→11.4%).

2. The decline in adjusted operating performance for Hardware Solutions from profitability into a loss, together with increases in inventories (+31.7%) and contract assets (+40.6%), represents a structural change requiring monitoring from the perspective of working-capital efficiency.

3. Progress against the full-year plan was relatively low at 12.7% for operating income and 22.2% for revenue. To achieve the company’s plan, which is weighted toward the second half of the fiscal year, continued profitability improvements and optimization of inventories and contract assets will be key.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥1,435–¥1,525 at ±1% for the cost of equity, and ¥1,471–¥1,492 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag relative to 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)

---

This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary 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 professionals as necessary.

---End of Report---