SEIKO EPSON CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥667.35B
• Operating Income: ¥31.14B
• Net Income: ¥18.67B
• EPS: ¥58.26

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

Seiko Epson (IFRS, consolidated) reported FY2026 Q2 cumulative results with revenue of 6,673.52 (100M JPY), down 1.0% YoY, indicating broadly flat topline amid a cautious demand environment. Gross profit was 2,457.07, implying a gross margin of 36.8%, a solid level for the portfolio mix but with limited headroom given modest volume softness. SG&A expenses were 1,946.66, or 29.2% of sales, constraining operating leverage as revenue edged down. Operating income declined 10.9% YoY to 311.45, compressing the operating margin to roughly 4.7% and highlighting negative operating leverage. Net income fell 19.8% YoY to 186.64, reflecting weaker operating profit and a normalizing tax burden (effective tax rate 31.1%). EBITDA was 660.64, with an EBITDA margin of 9.9%, indicating reasonable cash earnings capacity relative to thin operating margins. DuPont metrics show ROE at 2.3%, derived from a net margin of 2.8%, asset turnover of 0.461x, and financial leverage of 1.77x, underscoring that returns are currently constrained more by margin than by balance sheet efficiency or leverage. Cash generation was a bright spot: operating cash flow reached 699.75, and free cash flow (defined here as OCF plus investing cash flow) was 328.37, supported by disciplined capex of 294.29. The balance sheet remains strong, with total equity of 8,193.44 and an equity ratio of 56.6%, providing resilience against cyclical volatility. Inventories were 3,697.81, a significant component of current assets, underscoring the importance of working capital management as demand conditions evolve. Financing cash outflows totaled -471.40, including dividends of -122.70 and share repurchases of -118.98, suggesting continued shareholder returns despite profit softness. The calculated payout ratio of 148.1% is elevated on a period basis, though free cash flow coverage of dividends (1.19x) indicates near-term affordability. Liquidity ratios cannot be computed due to unreported current liabilities, but cash and equivalents stood at 2,670.00, and the firm’s equity base provides a cushion. Non-operating items (interest expense, ordinary income) are unreported, limiting visibility into below-OP profit drivers and interest coverage. Overall, the quarter reflects resilient cash flow and balance sheet strength against modest revenue decline and margin pressure, with returns on equity currently subdued. Data gaps (e.g., R&D, interest expense, current liabilities) constrain precision in certain diagnostics, but available metrics point to stable fundamentals with execution focus required on margin recovery and inventory discipline.

Profitability Analysis

ROE_decomposition: ROE 2.3% = Net margin 2.8% x Asset turnover 0.461x x Financial leverage 1.77x. The primary drag is a thin net margin; asset turnover is modest for a capital-intensive hardware/consumables business, while leverage is conservative. margin_quality: Gross margin of 36.8% supports the franchise but is offset by SG&A at 29.2% of sales, yielding an operating margin near 4.7%. EBITDA margin at 9.9% indicates cash earnings are healthier than OP but still not expansive. Effective tax rate at 31.1% suggests limited below-the-line tailwinds. operating_leverage: Revenue declined 1.0% YoY while operating income fell 10.9% YoY, signaling negative operating leverage as fixed costs weighed on profitability. With D&A at 349.19 (about 5.2% of sales), fixed cost absorption is meaningful; improving volumes or executing SG&A efficiencies is key to restoring leverage.

Growth Assessment

revenue_sustainability: Topline contracted slightly (-1.0% YoY), implying stable but not expanding demand mix. Given inventory scale and industry backdrop, near-term growth likely hinges on run-rate demand recovery and installed-base consumables. profit_quality: Net margin of 2.8% trails gross margin materially, evidencing cost pressure below gross profit (notably SG&A). EBITDA of 660.64 provides cash earnings support; however, profit sensitivity to volumes remains elevated. outlook: Absent detailed segment or FX disclosure, base-case is stabilization with gradual mix and cost improvements needed for margin expansion. Cash generation capability suggests capacity to fund selective growth investments, but near-term profit growth is contingent on operating leverage recovery.

Financial Health

liquidity: Cash and equivalents were 2,670.00. Current assets of 8,808.55 provide a substantial buffer, but current and quick ratios are not calculable due to unreported current liabilities; thus, point-in-time liquidity ratios are not available. solvency: Total equity of 8,193.44 and an equity ratio of 56.6% indicate a robust capital base. Reported debt-to-equity of 0.80x (based on available XBRL ratio) suggests moderate leverage on a broad liabilities basis, though interest-bearing debt specifics are unreported. capital_structure: Financial leverage in the DuPont framework is 1.77x, consistent with a conservative posture. The company executed dividends and buybacks in the period while maintaining strong equity, implying headroom for ongoing shareholder returns barring a sharp downturn.

Cash Flow Quality

earnings_quality: OCF/Net income at 3.75x denotes high cash conversion and limited accrual risk in the period. The 9.9% EBITDA margin complements this, indicating solid cash earnings despite compressed OP. FCF_analysis: OCF 699.75 minus total investing outflows of 371.38 yields FCF of 328.37 (definition used here: OCF + Investing CF). Capex was 294.29, implying capex discipline and capacity to fund both maintenance and selective growth. working_capital: Inventories were 3,697.81, roughly 55% of period revenue, highlighting working capital intensity. Detailed AR/AP balances are unreported, limiting full WC diagnostics; however, strong OCF suggests net working capital movements were favorable or controlled.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio of 148.1% is elevated on a period EPS basis, implying distributions exceeded period earnings. This may reflect timing, interim policy cadence, or the quarterly nature of EPS. FCF_coverage: Dividends paid were 122.70 against FCF of 328.37, equating to 2.7x coverage by this FCF definition; stated FCF coverage ratio of 1.19x likely uses a different denominator set, but both indicate coverage in the period. policy_outlook: With an equity ratio of 56.6% and strong OCF, near-term dividend capacity appears supported; however, sustainability at current levels depends on restoring earnings growth and maintaining healthy cash conversion. Share repurchases of 118.98 add to total cash returns and may be modulated with profit trends.

Risk Assessment

Business Risks:

• Demand softness in printers, office equipment, and related consumables leading to negative operating leverage
• Product mix shifts and price competition compressing margins
• FX volatility impacting export competitiveness and translation effects
• Input cost fluctuations (components, logistics) affecting gross margin
• Inventory obsolescence risk given sizable inventory balance
• Technology substitution risk and competitive intensity from global peers

Financial Risks:

• Limited visibility into interest expense and interest-bearing debt profile
• Potential working capital swings impacting cash conversion
• High period payout ratio versus earnings if profits remain subdued
• Sensitivity of net income to tax rate normalization without below-the-line offsets

Key Concerns:

• Operating income decline (-10.9% YoY) on slight revenue contraction indicates fragile operating leverage
• ROE at 2.3% is below cost of equity benchmarks, requiring margin or turnover improvement
• Data gaps (R&D, interest expense, current liabilities) constrain full risk quantification

Investment Implications

Key Takeaways:

• Stable topline (-1.0% YoY) but weaker operating and net profit indicates margin pressure
• Cash generation is strong (OCF 699.75; FCF 328.37), supporting balance sheet and returns
• Equity ratio 56.6% and leverage of 1.77x reflect conservative solvency
• Operating leverage is negative; SG&A efficiency and volume recovery are pivotal
• Inventory scale underscores need for disciplined working capital management
• Payout ratio elevated on period earnings, but dividends covered by FCF in the period

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• OCF/Net income and working capital turns (especially inventory days)
• Revenue growth by segment and pricing/mix effects (when disclosed)
• FX sensitivity and hedging outcomes
• Capex intensity versus growth opportunities
• Dividend and buyback pacing relative to earnings recovery

Relative Positioning: Within Japan-listed imaging/printing and precision device peers, Seiko Epson exhibits conservative leverage and strong cash conversion but currently lower ROE and pressured operating margins; execution on cost and mix improvements will be key to narrowing the gap with higher-margin competitors.

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
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