KEYENCE CORPORATION FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥1.17T
• Operating Income: ¥595.76B
• Net Income: ¥445.19B
• EPS: ¥1,835.63

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Keyence delivered a strong FY2026 performance with double-digit top-line growth and high-teens profit growth at key levels, underpinned by exceptional margins and a fortress balance sheet. Revenue rose 10.4% YoY to 11,692.9, while operating income increased 8.4% to 5,957.6, and net income advanced 11.7% to 4,451.9. Gross profit reached 9,707.4 with an 83.0% gross margin. Operating margin remained best-in-class at 51.0%, though it compressed by roughly 80–100 bps versus the prior year. Net margin expanded modestly by about 40 bps to 38.1%, aided by higher interest income and FX gains in non-operating income. Ordinary income grew 13.3% to 6,357.6, outpacing operating income growth, reflecting tailwinds from financial income. EPS was 1,835.63 yen. Operating cash flow of 4,306.8 was 0.97x net income, indicating solid earnings quality despite working capital headwinds. Free cash flow was 1,182.9 after 283.7 in CapEx. The balance sheet remains exceptionally conservative with a current ratio of 10.5x, D/E of 0.06x, and equity ratio of 94.6%. Investment securities represent 41.3% of total assets, a key balance sheet feature that contributes to non-operating income and valuation sensitivity. Geographically, overseas sales rose to 779.2 (from 686.4), while domestic sales increased to 390.1 (from 372.8), reinforcing diversified demand. Cash conversion (OCF/EBITDA) was 0.70x, which is weaker than top-tier benchmarks and reflects a longer cash cycle. Dividend proposals of 275 yen at interim and year-end imply a full-year DPS of 550 yen and a payout ratio around 30%, aligned with earnings growth and policy discipline. Overall, Keyence demonstrated resilient growth, sustained very high profitability, and conservative capital structure, with monitoring warranted on working capital efficiency and the valuation of investment securities.

Profitability Analysis

ROE (12.8%) = Net Profit Margin (38.1%) × Asset Turnover (0.319) × Financial Leverage (1.06x). The largest driver YoY was net profit margin, which edged higher due to stronger non-operating income (interest income 162.5 and FX gains 162.7) offsetting modest operating margin compression. Operating margin fell slightly (about 80–100 bps) as SG&A growth (+11.0% YoY to 3,749.8) slightly outpaced revenue growth (+10.4%), while gross margin eased (~80 bps) on product/geographic mix and cost normalization. Asset turnover was broadly stable to slightly lower (sales growth offset by a larger asset base), and financial leverage remained effectively unchanged at ~1.06x, consistent with the company’s asset-light, cash-rich model. The improvement in net profit margin is partly sustainable given structural interest income on a large cash/securities base, but FX gains are inherently volatile. A point to monitor is cost discipline: SG&A growth modestly exceeded revenue growth, suggesting limited operating leverage this year.

Growth Assessment

Revenue grew 10.4% YoY to 11,692.9, with overseas sales rising to 779.2 and domestic to 390.1, indicating broad-based demand. Operating income increased 8.4% to 5,957.6, with margin resilience at 51.0% despite slight compression. Net income rose 11.7% to 4,451.9, reflecting both core strength and a lift from non-operating income. EBITDA was 6,129.9 with a 52.4% margin, confirming robust cash earnings capacity. The growth profile remains supported by Keyence’s innovation-led product portfolio and global expansion, while the long cash cycle tempers near-term cash conversion. Investment in capacity and capabilities continued, with CapEx/Depreciation at 1.65x, supportive of future growth.

Financial Health

Liquidity is exceptionally strong: current assets 1,979.5 vs current liabilities 187.8 yield a current ratio of 10.5x and a quick ratio of 10.1x. Solvency is conservative with D/E at 0.06x and equity ratio at 94.6%. There is no maturity mismatch risk: cash and deposits (596.98) plus short-term investment securities (8,969.13) and receivables (379.59) far exceed current liabilities (187.83). Investment securities comprise 41.3% of total assets, introducing mark-to-market sensitivity but also supporting recurring financial income. Income taxes payable increased to 102.33, aligned with higher profitability. No warnings on Current Ratio or D/E thresholds are triggered.

Notable B/S Changes

Intangible Assets: +228.4 (+360.4%) - step-up in software/other intangibles; limited balance sheet weight but monitor amortization and ROI. Accounts Payable: -4.0 (-26.9%) - reduced supplier credit; modest drag on operating cash flow. Retained Earnings: +345.1 (+11.1%) - accumulation from strong profitability after dividends. Property, Plant & Equipment: +17.8 (+23.1%) - capacity and tooling expansion aligning with growth. Short-term Investment Securities: +2,568. (approx. +40.1%) - reallocation within securities improving liquidity profile.

Cash Flow Quality

OCF of 4,306.8 was 0.97x net income (4,451.9), indicating high-quality earnings. Working capital movements were a headwind: receivables increased by 368.6, inventories by 55.4, and payables decreased by 44.0, dampening OCF versus EBITDA. Cash conversion (OCF/EBITDA) was 0.70x, at the lower bound of acceptable for a high-margin manufacturer, reflecting a long cash conversion cycle. FCF of 1,182.9 after 283.7 in CapEx supports ongoing investments and most shareholder returns. No signs of aggressive working capital management are evident; changes appear volume- and timing-driven.

Dividend Sustainability

The full-year DPS of 550 yen implies a payout ratio around 30.0% against EPS of 1,835.63 yen, a conservative level relative to profitability. Reported cash dividends paid were 109.1, and FCF coverage was 0.88x, indicating dividends were modestly above FCF this year due to working capital absorption; this is not structurally concerning given the large net cash and securities position. With CapEx/Depreciation at 1.65x, internal funding capacity remains ample. The total return focus remains disciplined, and dividend sustainability is well-supported by strong margins, cash generation over the cycle, and an over-capitalized balance sheet.

Risk Assessment

Business risks include Demand cyclicality in factory automation and capital goods end-markets could affect order intake and utilization., Geographic and FX exposure: overseas sales of 779.2 (67% of total) heighten sensitivity to currency swings., Product mix and pricing dynamics can influence gross margin given very high contribution margins., Innovation cadence risk: sustained growth depends on new product adoption and upgrade cycles..

Financial risks include Large investment securities balance (41.3% of assets) introduces market valuation and interest-rate sensitivity., Extended working capital cycle (DSO/DIO) elevates cash conversion risk and potential credit risk on receivables., Cash conversion (OCF/EBITDA) at 0.70x is below best-in-class, exposing near-term FCF to WC volatility., FX gains/losses and interest income contribute to non-operating volatility despite no structural leverage..

Key concerns include High receivable and inventory days extend the cash conversion cycle and can pressure OCF in growth phases., Operating margin compressed modestly as SG&A growth slightly outpaced revenue; sustained discipline is key., Valuation risk in investment securities could affect OCI and, indirectly, capital allocation flexibility..

Investment Implications

Key takeaways include Sustained double-digit revenue growth with elite operating margin (~51%) and net margin (~38%)., ROE of 12.8% achieved with minimal leverage, driven by margins rather than balance sheet risk., Earnings quality solid (OCF/NI 0.97x), though cash conversion is capped by a long cash cycle., Balance sheet strength (equity ratio 94.6%) and sizeable liquid securities underpin resilience and financial income., CapEx/Depreciation of 1.65x signals continued investment for growth..

Metrics to watch include DSO, DIO, and overall cash conversion cycle progression, Gross and operating margin trajectory vs SG&A growth, OCF/EBITDA and FCF coverage of dividends, FX impacts and interest income contribution within non-operating items, Valuation changes in investment securities (OCI sensitivity).

Regarding relative positioning, Keyence remains among the most profitable names in global factory automation with exceptional margins and a near-debt-free balance sheet; relative constraints are a structurally long working capital cycle and sensitivity to FX and marketable securities valuations.