YOKOGAWA ELECTRIC CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

This quarter saw higher revenue, but final profit remained sluggish due to increased expenses and the normalization of the tax burden. Revenue was ¥1413.5B (+8.6% year on year), Operating Income was ¥164.9B (+1.8%), and Ordinary Income was ¥168.8B (+8.1%), resulting in higher revenue and profit. However, quarterly Net Income attributable to owners of the parent declined to ¥122.2B (-19.4%). Revenue growth in both the control and measurement instrument businesses, together with an improvement in the gross margin, supported profit growth through the Ordinary Income level. Meanwhile, the increase in SG&A expenses (+12.6%) exceeded revenue growth and pressured the Operating Income margin. The decline in Net Income was primarily attributable to the normalization of the effective tax rate from approximately 0% to 22.6%, following the reversal of a temporary tax effect recognized in the prior year.

Factors Affecting Financial Performance

【Revenue】Revenue increased 8.6% year on year to ¥1413.5B. By segment, Industrial Automation and Control (93.0% of total revenue) grew significantly by +7.8%, while Test and Measurement (6.7% of total revenue) increased +30.5%, driving overall company growth. New Businesses Other (0.4% of total revenue) contracted by -51.0%.

【Profit and Loss】Operating Income increased 1.8% year on year to ¥164.9B. The gross margin improved by +0.5pt year on year to 47.7%; however, SG&A expenses increased +12.6%, causing the SG&A ratio to deteriorate to 36.0% (+1.3pt) and the Operating Income margin to decline to 11.7% (-0.8pt). Ordinary Income increased 8.1% to ¥168.8B, exceeding the growth rate of Operating Income, supported by equity-method income of ¥3.1B and other factors. In contrast, Net Income attributable to owners of the parent declined 19.4% to ¥122.2B. The primary reason was the normalization of the effective tax rate to 22.6%, following the reversal of a temporary tax effect recognized in the prior year, when income taxes and other taxes were recorded as a negative amount. The overall structure was one of higher revenue and profit at the Operating Income and Ordinary Income levels, but lower final profit due to the normalization of the tax burden.

Segment Analysis

Industrial Automation and Control maintained its position as the core business, with revenue of ¥1313.9B (93.0% of total revenue, YoY+7.8%). However, Operating Income declined to ¥141.5B (YoY-3.5%), and the margin decreased to 10.8% from 12.0% in the prior year. Test and Measurement achieved substantial profit growth, with revenue of ¥94.3B (6.7% of total revenue, YoY+30.5%) and Operating Income of ¥24.0B (YoY+63.7%). Its margin improved to 25.5% from 20.3% in the prior year, contributing to an improvement in overall company profitability. New Businesses Other recorded revenue of ¥5.3B (YoY-51.0%) and an Operating Loss of ¥0.6B, compared with profit of ¥0.6B in the prior year. The structure is clearly one in which the high profitability of the measurement instrument business, which accounted for 14.6% of company-wide Operating Income, offset the decline in margins in the core control business.

Key Financial Indicators

【Profitability】The Operating Income margin declined by -0.8pt to 11.7% from 12.4% in the prior year, while the Net Income margin, based on income attributable to owners of the parent, decreased by -3.0pt to 8.6% from 11.6%. The gross margin improved to 47.7% from 47.2% in the prior year, indicating continued progress in cost efficiency.【Cash Flow Quality】Cash and deposits decreased -10.0% to ¥1957.8B from ¥2175.5B in the prior year. Meanwhile, contract liabilities (advances received) accumulated to ¥684.9B (YoY+7.6%), providing a certain foundation for future revenue recognition.【Investment Efficiency】ROE was 2.5% on a quarterly basis, remaining at a level that indicates room for improvement in capital efficiency.【Financial Soundness】The Equity Ratio remained high at 66.8%, while interest-bearing debt was limited to ¥242.0B. Cash and deposits were approximately eight times that amount, indicating a stable financial foundation.

Cash Flow Analysis

As cash flow statement data for the quarter has not been disclosed, cash movements are assessed based on changes in the balance sheet. Cash and deposits decreased by -¥217.7B (-10.0%) to ¥1957.8B from ¥2175.5B in the prior-year period. Treasury stock increased from -¥66.7B in the prior year to -¥268.6B, suggesting that cash expenditures associated with enhanced shareholder returns were one factor behind the decline in cash. Meanwhile, contract liabilities (advances received) increased to ¥684.9B (YoY+7.6%), indicating an accumulation of advance payments based on orders received. Accounts receivable and notes receivable stood at ¥2429.1B, down from ¥2603.0B in the prior year, suggesting that collections have progressed to a certain extent. Interest-bearing debt was limited to ¥242.0B, and together with the ample cash balance, this indicates a high degree of stability in the company’s funding position.

Earnings Quality

The gap between Ordinary Income of ¥168.8B and Net Income attributable to owners of the parent of ¥122.2B was ¥46.6B, primarily due to income taxes and other taxes of ¥37.9B and Net Income attributable to non-controlling interests of ¥7.7B. In the prior-year period, income taxes and other taxes were -¥1.7B, representing virtually no tax burden. In contrast, the effective tax rate normalized to 22.6% in the current period, preventing the 8.1% increase in Ordinary Income from flowing through to final profit and resulting in a -19.4% year-on-year decline in Net Income. This difference reflects the reversal of a temporary tax effect. The fact that Ordinary Income, which reflects the underlying strength of the business, increased steadily from the prior year can be viewed positively in terms of earnings quality. Non-operating income included dividend income of ¥7.6B and interest income of ¥7.9B, while a foreign exchange loss of ¥9.4B was recorded. Consequently, non-operating income and expenses were broadly balanced, resulting in net income of ¥3.9B. Comprehensive Income was ¥188.2B (¥178.5B attributable to owners of the parent), exceeding Net Income of ¥122.2B. The primary factors behind the difference were valuation changes such as foreign currency translation adjustments (+¥43.2B) and valuation difference on securities (+¥14.0B); these are accrual-based factors that are not directly linked to the business’s cash-generating capacity.

Earnings Forecasts and Guidance

Progress toward the full-year forecasts was 23.0% for Revenue, 19.4% for Operating Income, 19.9% for Ordinary Income, and 20.9% for Net Income attributable to owners of the parent. None reached the simple one-quarter (25%) progress benchmark. The full-year plan calls for Revenue of ¥6150.0B (YoY+1.7%), Operating Income of ¥850.0B (YoY+3.0%), Ordinary Income of ¥850.0B (YoY+0.9%), and forecast EPS of ¥229.75. No revisions to the earnings forecasts had been made as of the end of the quarter. Revenue growth of +8.6% in Q1 exceeded the full-year plan of +1.7%, and progress from Q2 onward will be a key factor in assessing whether the plan can be achieved.

Shareholder Returns

The full-year dividend forecast is ¥92.00 per share, implying a Payout Ratio of approximately 40.0% based on forecast EPS of ¥229.75. No revision to the dividend forecast had been made as of the end of the quarter. Treasury stock increased from -¥66.7B in the prior year to -¥268.6B, indicating progress in share repurchases. Dividends can be fully funded through internal resources, given cash and deposits of ¥1957.8B and the low level of interest-bearing debt, and financial constraints are considered limited. The Payout Ratio based solely on dividends is approximately 40.0%, while the scale of total shareholder returns, including share repurchases, is expected to exceed this level.

Risk Factors

1. Segment concentration risk: Industrial Automation and Control accounts for 93.0% of revenue and 85.8% of Operating Income, creating a structure in which demand trends in this business have a significant impact on overall performance.

2. Foreign exchange risk: The company recorded a foreign exchange loss of ¥9.4B during the quarter, which was a major factor in non-operating expenses. Fluctuations in the yen exchange rate may continue to affect profitability through non-operating income and expenses.

3. Working capital and collection cycle trends: Accounts receivable and notes receivable remain high at ¥2429.1B, while inventories of products, raw materials, and other items also remain elevated. Although the increase in contract liabilities of ¥684.9B represents a source of future revenue, the efficiency of collections and inventory management will affect the pace of cash generation.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Company’s Operating Income margin and Net Income margin exceed the industry median, indicating a relatively strong position in terms of profitability.

Growth and Capital Efficiency

The Revenue growth rate also exceeds the industry median and is positioned toward the upper end of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Results

1. While the core control business posted a decline in profit (Operating Income YoY-3.5%), the measurement instrument business achieved high growth and profitability, with revenue of +30.5%, Operating Income of +63.7%, and a margin of 25.5%. The shift in the business mix between segments is affecting the company-wide earnings structure.

2. The increase in SG&A expenses (+12.6%) exceeded revenue growth (+8.6%), and the Operating Income margin declined by -0.8pt year on year. As the gross margin improved, future trends in the cost structure will determine the trajectory of the Operating Income margin.

3. The decline in Net Income (-19.4%) was attributable to the reversal of a temporary tax effect recognized in the prior year, while Ordinary Income increased +8.1%. When assessing the underlying earnings performance, it is necessary to distinguish the temporary factor of tax burden normalization from the earnings trends of the core business.

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 five-year fade). It is not a forecast of the market share price or a recommendation to undertake any specific investment action.

Sensitivity: ¥2,172–¥2,299 at a ±1% change in the cost of equity capital; ¥2,230–¥2,240 at a change of ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(Calculation model: residual income model / interest rate reference month: 2026-06 / this value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on 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 disclosed earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional advisor.

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