Sharp Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥950.34B
• Operating Income: ¥28.95B
• Net Income: ¥22.96B
• EPS: ¥70.05

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

Sharp Corporation (TSE: 6753) reported FY2026 Q2 consolidated results under JGAAP showing revenue of ¥950.3bn, down 13.3% YoY, but with notable earnings improvement. Gross profit is reported at ¥188.2bn, implying a gross margin of 19.8% and suggesting improved mix and/or cost discipline despite topline pressure. Operating income rose 64.6% YoY to ¥29.0bn, lifting the operating margin to roughly 3.0%, signaling effective SG&A containment and restructuring benefits. Ordinary income reached ¥33.6bn, aided by better non-operating balance relative to prior periods. Net income soared to ¥45.5bn (+98.1% YoY), indicating material contributions from non-operating and/or extraordinary items. EPS is ¥70.05, but share count data were not disclosed in this dataset, limiting per-share diagnostics. DuPont analysis shows ROE of 20.55%, driven by a 4.79% net margin, asset turnover of 0.671x, and high financial leverage of 6.40x. The current ratio of 129.4% and quick ratio of 97.5% suggest adequate short-term liquidity, though just shy of the 100% quick ratio threshold. Interest coverage is 5.9x, indicating manageable interest burden given current profitability. Operating cash flow was negative at -¥13.6bn despite positive earnings, reflecting poor cash conversion in the period and pointing to working capital outflows and/or timing effects. Inventories stand at ¥242.1bn, a focus area given the revenue decline and negative OCF. Total liabilities of ¥1.286tn and debt-to-equity of 5.81x underscore a highly leveraged balance sheet, amplifying both ROE and financial risk. Dividend per share is reported as ¥0.00 and payout ratio 0%, consistent with prioritizing balance sheet stabilization and cash conservation. Several data points (e.g., cash balance, investing cash flow, equity ratio, share count) are not disclosed here; analysis relies on available non-zero metrics and may not fully reflect the company’s financial position. Overall, profitability optics improved markedly on margin expansion and non-operating gains, but cash conversion and leverage warrant close monitoring.

Profitability Analysis

ROE of 20.55% reflects a combination of a 4.79% net margin, asset turnover of 0.671x, and leverage of 6.40x, indicating that high leverage is a meaningful driver of equity returns. The reported gross margin of 19.8% implies improved cost discipline and/or better product mix despite a 13.3% YoY revenue decline. EBITDA of ¥54.3bn yields a 5.7% margin, showing some operating buffer over fixed costs, but still modest relative to cyclical swings in electronics and components. Operating margin at roughly 3.0% has expanded meaningfully YoY given operating income growth (+64.6%) against revenue contraction, pointing to operating leverage from cost structure optimization. Ordinary income exceeded operating income (¥33.6bn vs ¥29.0bn), indicating net non-operating gains or reduced financial drag in the period. Net income (¥45.5bn) outpaced ordinary income, signaling significant below-the-line positives (e.g., extraordinary gains or tax effects). Interest expense of ¥4.87bn with EBIT coverage at 5.9x is acceptable but sensitive to downturns given high leverage. The effective tax burden appears light relative to pre-tax profits based on reported tax expense, which supported net margin. Profitability quality is mixed: P&L margins improved, but the negative OCF undermines earnings quality in the quarter.

Growth Assessment

Revenue declined 13.3% YoY to ¥950.3bn, indicating persistent demand softness and/or portfolio rationalization. Despite the topline decline, operating income increased 64.6% YoY, suggesting that restructuring, cost reductions, and mix improvements are taking hold. The sustainability of this profit growth hinges on maintaining gross margin near 20% and containing SG&A while stabilizing sales volumes. The divergence between higher earnings and negative OCF raises questions about the durability of profit improvements absent better cash conversion. Ordinary income growth above operating income points to reliance on non-operating factors; such contributions can be volatile. Net income benefited from extraordinary/non-recurring items; future growth should be evaluated on core operating trends. Inventory at ¥242.1bn amid lower sales warrants careful management to avoid discounting and margin pressure. Looking forward, sustaining mid-single-digit EBITDA margins while restoring modest revenue growth would be key to maintaining ROE without over-reliance on leverage. Absent disclosed order/backlog data, visibility is limited; monitoring sell-through and channel inventory will be important.

Financial Health

Liquidity appears adequate with a current ratio of 129.4% and a quick ratio of 97.5%, though the latter indicates limited cushion if inventories are not readily liquid. Working capital of ¥222.9bn provides some buffer, but negative operating cash flow suggests near-term liquidity could tighten if working capital outflows persist. Solvency risk is notable given debt-to-equity of 5.81x and DuPont leverage of 6.40x; leverage magnifies both returns and downside risk. Total liabilities of ¥1.286tn against reported total equity of ¥221.3bn indicate a heavy capital structure tilt toward liabilities. Interest coverage at 5.9x is acceptable currently but could compress if operating income normalizes or interest costs rise. Some balance sheet items (e.g., cash and equivalents) are not disclosed here, limiting a full liquidity stress assessment.

Cash Flow Quality

Operating cash flow of -¥13.6bn against net income of ¥45.5bn yields an OCF/NI ratio of -0.30, signaling weak cash conversion in the period. The gap implies working capital absorption and/or non-cash and non-recurring earnings contributors. D&A of ¥25.4bn supports EBITDA-to-cash reconciliation, but the negative OCF indicates that accruals or inventory changes weighed on cash. Free cash flow is not determinable from this dataset, as investing cash flow is not disclosed here (reported as 0 indicates unreported). Without cash and equivalents disclosure, cash runway analysis cannot be completed. Overall, earnings quality for the quarter is questionable until cash generation improves and working capital normalizes.

Dividend Sustainability

Reported DPS is ¥0.00 with a 0% payout ratio, aligning with a conservative stance amid leverage and weak cash conversion. Given negative OCF and unavailable FCF data, FCF coverage of dividends cannot be reliably assessed despite the reported 0.00x figure. With ROE elevated largely due to leverage and non-operating gains, prioritizing deleveraging and cash stabilization over distributions appears prudent. Future dividend resumption would likely depend on sustained positive OCF, stable EBITDA margins, and clearer balance sheet headroom.

Risk Assessment

Business Risks:

• Revenue decline of 13.3% YoY suggests end-market softness and competitive pressures.
• Inventory level of ¥242.1bn amid lower sales raises risk of discounting and margin erosion.
• Profit reliance on non-operating/extraordinary items increases earnings volatility.
• Execution risk around restructuring and cost reductions needed to sustain margins.
• Supply chain and component price volatility impacting gross margins.

Financial Risks:

• High leverage (debt-to-equity 5.81x; DuPont leverage 6.40x) magnifies downside.
• Negative operating cash flow despite positive earnings undermines liquidity.
• Interest coverage at 5.9x could compress if operating performance weakens.
• Limited disclosure of cash balance and investing cash flows restricts visibility.
• Refinancing and covenant risks if market conditions tighten.

Key Concerns:

• Sustainability of margin expansion with declining revenue.
• Working capital management to restore positive cash conversion.
• Potential one-off nature of items boosting net income.
• Balance sheet resilience given leverage and partial disclosures.

Investment Implications

Key Takeaways:

• Earnings improved materially with operating income up 64.6% YoY despite revenue down 13.3%.
• Gross margin at 19.8% and operating margin near 3.0% indicate successful cost/mix actions.
• High ROE (20.55%) is leverage-assisted; balance sheet risk remains elevated.
• Negative OCF (¥-13.6bn) questions earnings quality and near-term cash flexibility.
• Liquidity is adequate but not ample; quick ratio at 97.5% merits monitoring.
• Dividend remains suspended (DPS ¥0), consistent with cash conservation.

Metrics to Watch:

• Operating cash flow and OCF/NI ratio improvement toward >1.0 over coming quarters.
• Inventory turns and days inventory on hand amid sales pressure.
• EBITDA margin trajectory relative to 5.7% baseline.
• Net debt and interest coverage sustainability.
• Non-operating and extraordinary gain/loss contributions to net income.

Relative Positioning: Within Japan’s electronics/devices peer set, Sharp shows improving margins but remains more leveraged and exhibits weaker cash conversion in this period, implying higher financial beta and execution sensitivity relative to peers with stronger balance sheets and steadier OCF.

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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