TEAC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.24B
• Operating Income: ¥-226M
• Net Income: ¥-202M
• Earnings per Unit (EPU): ¥-7.01

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 persistent operating and net losses despite mid‑single digit revenue growth and slight YoY improvement in losses. Revenue rose 7.5% YoY to 72.38, but operating income remained negative at -2.26, implying an operating margin of -3.1%. Gross profit was 30.01 with a gross margin of 41.5%, indicating pricing/mix resilience but not enough to absorb SG&A of 31.67. EBITDA was barely positive at 0.23 (0.3% margin), underscoring thin underlying profitability. Net income improved YoY by 23.3% to -2.02, but still in loss with a net margin of -2.8%. Cash flow quality was weak: operating cash flow was -0.34, only 0.17x of net income (quality flag), and free cash flow was -1.17, reflecting limited self-funding capacity. The balance sheet shows high leverage: equity ratio 30.5% and D/E 2.28x (warning), with inventories elevated at 41.57 and receivables at 28.55, tying up working capital. Liquidity signals are mixed due to limited disclosure on current liabilities, but cash and equivalents were 14.64 and accounts payable 13.36; short-term borrowing levels are undisclosed. ROE was -6.1% per DuPont (net margin -2.8%, asset turnover 0.663, leverage 3.28x), indicating margin-driven weakness amplified by leverage. ROIC of -5.7% is well below the 7–8% benchmark, pointing to value destruction in the period. Margin comparisons in basis points YoY cannot be quantified due to missing prior-period margins; directionally, losses narrowed slightly (operating income +2.9% YoY). Earnings quality concerns are elevated given OCF < NI and inventory build risk. Dividend payments (0.29 in CF) were not covered by FCF, raising sustainability questions if losses persist. Forward-looking, stabilization requires SG&A discipline, inventory normalization, and incremental gross margin gains; leverage management is also critical to protect equity in a low-margin environment.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-2.8%) × 0.663 × 3.28 ≈ -6.1%. Component assessment: The primary drag is the negative net margin; asset turnover of 0.663 is moderate for this scale hardware business, and leverage at 3.28x magnifies the negative margin into a negative ROE. Change driver: While exact YoY component changes are not fully disclosed, the slight YoY improvement in operating loss (+2.9% YoY) suggests marginal improvement in profitability, with asset turnover likely stable given revenue growth versus a similar asset base. Business reasons: SG&A (31.67) exceeded gross profit (30.01), indicating insufficient operating leverage and/or higher fixed costs (e.g., sales infrastructure, R&D expensed in SG&A) relative to scale; gross margin at 41.5% is decent, implying cost absorption rather than pricing is the issue. Sustainability: Gross margin appears resilient, but sustained ROE improvement hinges on reducing the SG&A-to-sales ratio and improving utilization; near-term sustainability is challenging without cost actions or stronger top-line acceleration. Concerning trends: SG&A exceeded gross profit this quarter; absent evidence of one-time SG&A, this is a red flag. Also, EBITDA margin of 0.3% offers little buffer against FX or input cost volatility.

Growth Assessment

Revenue grew 7.5% YoY to 72.38, indicating some demand resilience. However, growth did not translate into operating profitability, with operating margin at -3.1% and net margin at -2.8%. Gross margin of 41.5% suggests product mix/pricing are not the core problem; scale and overhead absorption are. Profit quality is weak given OCF negative (-0.34) and working capital intensity (inventories 41.57). Outlook hinges on converting revenue growth into operating leverage via SG&A control and inventory normalization; absent that, further growth may not improve earnings. No evidence of one-time gains/losses on the non-operating line (unreported), so current results reflect core operations. Directionally, losses narrowed (operating +2.9% YoY; net +23.3% YoY), but magnitude remains material. Near-term catalysts would include inventory drawdown, improved factory utilization, and cost rationalization; risks include demand softness in pro/consumer audio and FX volatility.

Financial Health

Leverage is high: D/E at 2.28x (warning) and equity ratio 30.5%. Liquidity: Current ratio is not calculable due to missing current liabilities, but current assets were 86.91, with cash 14.64, receivables 28.55, and inventories 41.57. Maturity mismatch risk: Accounts payable 13.36 appears manageable relative to cash plus receivables, but the absence of short-term loan disclosure prevents a full assessment; potential reliance on short-term borrowing would increase rollover risk. Interest-bearing debt levels and interest coverage are unreported, limiting solvency analysis depth. Asset quality: High inventory balance raises obsolescence and markdown risk in electronics. No off-balance sheet obligations were reported in the data provided.

Cash Flow Quality

OCF/Net Income is 0.17x (<0.8), flagging poor earnings quality and limited cash conversion. Operating CF was -0.34 despite a net loss of -2.02, indicating additional cash usage from working capital (likely inventory build or receivables growth). Free cash flow was -1.17 after capex of -0.82, indicating the business is not self-funding in the period. With dividends paid of -0.29, distributions were not covered by FCF (FCF coverage -4.04x), implying reliance on cash balances or financing CF (+0.27) to fund payouts. Working capital signals: Inventories (41.57) are high relative to sales scale, suggesting potential buildup; receivables (28.55) also sizable. No evidence of aggressive working capital release; rather, cash consumption suggests the opposite.

Dividend Sustainability

Payout assessment is constrained by unreported DPS, but cash flow shows dividends paid of 0.29 during the period. With net loss (-2.02) and FCF (-1.17), dividends were not covered by earnings or free cash flow, rendering payouts unsustainable if current trends persist. Calculated payout ratio is negative (not meaningful given losses). Policy outlook: Unless profitability and cash conversion improve in H2, management may need to reassess payout to preserve liquidity given elevated leverage.

Risk Assessment

Business Risks:

• Demand volatility in professional and consumer audio markets impacting top line and utilization
• Inventory obsolescence and markdown risk given high inventory balance relative to sales
• Pricing pressure from competition reducing ability to cover fixed SG&A
• Supply chain and component cost variability affecting gross margins
• FX volatility (JPY vs USD/EUR) impacting import costs and overseas revenues

Financial Risks:

• High leverage (D/E 2.28x) elevates covenant and refinancing risk
• Weak cash conversion (OCF/NI 0.17x) limits self-funding capacity
• Potential maturity mismatch if short-term borrowings are significant (not disclosed)
• Negative ROIC (-5.7%) indicates value erosion if sustained
• Limited margin of safety with EBITDA margin at 0.3%

Key Concerns:

• SG&A exceeding gross profit, preventing operating profitability
• Persistent negative FCF while paying dividends
• Incomplete disclosure on non-operating items and debt structure impedes full risk diagnosis

Investment Implications

Key Takeaways:

• Top-line grew 7.5% YoY but failed to translate into profits; operating margin remains -3.1%
• Gross margin healthy at 41.5%, suggesting cost absorption/scale—not pricing—is the constraint
• High leverage (D/E 2.28x) with equity ratio 30.5% heightens downside in a low-margin environment
• Cash conversion weak (OCF/NI 0.17x); FCF negative and dividends not covered
• ROE -6.1% and ROIC -5.7% highlight subpar capital efficiency

Metrics to Watch:

• SG&A-to-sales ratio and operating margin progression (bps change)
• Inventory levels and turnover; working capital release
• OCF/Net income and FCF trajectory
• Debt levels, interest expense, and interest coverage once disclosed
• Gross margin stability amid FX and component cost moves

Relative Positioning: Within audio equipment peers, TEAC shows decent gross margin but weaker operating leverage and cash conversion, compounded by higher leverage; improvement requires cost discipline and working capital normalization to close the profitability gap.

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