KEYENCE CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Both revenue and earnings increased substantially, with the expansion in profit margins being the most notable feature, as the earnings growth rate exceeded the revenue growth rate. Revenue was ¥3466.2B (+32.8% YoY), Operating Income was ¥1870.8B (+44.7%), Ordinary Income was ¥1967.9B (+49.6%), and Net Income was ¥1391.3B (+51.0%). The Operating Income margin expanded to 54.0% from 49.5% in the same period of the previous year, likely reflecting operating leverage from a high-value-added product mix and the absorption of fixed costs.

Factors Affecting Performance

【Revenue】Revenue was ¥3466.2B, representing a 32.8% increase from the same period of the previous year. The Company operates as a single segment centered on the manufacture and sale of electronic application equipment, and segment-specific factors affecting changes have not been disclosed. The gross profit margin remained high at 85.0%, and the expansion in sales of high-value-added products appears to have contributed to revenue growth.

【Profit and Loss】Operating Income was ¥1870.8B (+44.7%), with earnings growth exceeding revenue growth by 11.9pt, while the SG&A ratio remained at 31.1%, indicating progress in fixed-cost absorption. Ordinary Income was ¥1967.9B, ¥97.2B above Operating Income, with interest income of ¥60.9B and foreign exchange gains of ¥22.4B contributing to the result. Net Income was ¥1391.3B (+51.0%), and the effective tax rate was 29.3%, within the normal range. The Company achieved both revenue and earnings growth, representing growth accompanied by improved profitability, as the earnings growth rate exceeded the revenue growth rate.

Segment Analysis

The Company operates as a single segment centered on the manufacture and sale of electronic application equipment, and does not disclose segment-level revenue or profit and loss.

Key Financial Indicators

【Profitability】The Operating Income margin was 54.0% and the Net Income margin was 40.1%, both expanding from the same period of the previous year (49.5% and 35.3%, respectively). The gross profit margin remained high at 85.0%.【Cash Quality】Against accounts receivable of ¥3976.3B and inventories of ¥1010.7B, accounts payable stood at only ¥236.0B, confirming an accumulation of working capital. The increase in accounts receivable and inventories associated with the sharp expansion in revenue may be affecting the timing of cash conversion.【Investment Efficiency】ROE (annualized) was approximately 3.9% (quarterly actual figure). Despite the high Net Income margin, the total asset turnover ratio was low, while investment securities, which accounted for 42.9% of total assets, constrained asset efficiency.【Financial Soundness】The Equity Ratio was 95.3%. Current liabilities stood at only ¥1639.6B against current assets of ¥19456.4B, resulting in extremely high current and quick ratios.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, fund movements are analyzed based on changes in the balance sheet. Cash and deposits were ¥5647.5B, slightly down from ¥5969.8B in the same period of the previous year. Meanwhile, current securities remained almost flat at ¥8618.4B versus ¥8618.4B, while investment securities increased from ¥15143.0B to ¥15982.8B, suggesting that a portion of surplus funds may have been allocated to securities investments. Accounts receivable increased from ¥3796.9B to ¥3976.3B, and inventories rose from ¥852.7B to ¥1010.7B, indicating an accumulation of working capital alongside revenue growth. Although accounts payable increased from ¥108.9B to ¥236.0B, the increase was insufficient to absorb the increases in accounts receivable and inventories. The debt-to-equity ratio was low at 0.05x, and concerns regarding the funding structure are limited.

Quality of Earnings

Most of the profit was derived from Operating Income, indicating limited dependence on temporary factors. Of the ¥98.0B in non-operating income, interest income of ¥60.9B and foreign exchange gains of ¥22.4B were the primary contributors. Non-operating income accounted for only 2.8% of revenue, indicating a low degree of dependence on non-core income. The difference between Ordinary Income and Net Income was attributable to income taxes of ¥576.6B, resulting in an effective tax rate of 29.3%, with no significant deviation. Comprehensive income was ¥1439.7B, exceeding Net Income of ¥1391.3B by ¥48.3B. Foreign currency translation adjustments of ¥53.6B were the primary factor, while valuation differences on securities contributed negatively by ▲¥5.4B. The pace of increase in accounts receivable and inventories was high relative to profit growth, suggesting from an accrual perspective (the divergence between accrual-based earnings and cash flows) that the increase in working capital may be delaying the conversion of earnings into cash.

Earnings Forecast and Guidance

The full-year dividend forecast is ¥550 per share, but full-year revenue and earnings forecasts have not been disclosed. As of the current quarter, no revision has been made to the dividend forecast.

Shareholder Returns

The full-year dividend forecast remains ¥550 per share, with no revision. Using the average number of shares outstanding during the period of 242,525 thousand shares, the annual total dividend is estimated at approximately ¥1333.9B. Based on the annualized figure of ¥5565.3B, calculated by simply multiplying current-quarter Net Income of ¥1391.3B by 4, the Payout Ratio is approximately 24.0%, indicating substantial earnings capacity based on dividends alone. As no data on share repurchases has been provided, the Total Return Ratio has not been calculated. The financial foundation, including cash and deposits of ¥5647.5B and an Equity Ratio of 95.3%, also supports the dividend.

Risk Factors

1. Inventory accumulation: Inventories were ¥1010.7B, up +18.5% YoY. Although the increase was below the rate of revenue growth, monitoring is necessary from the perspectives of fluctuations in demand forecasts and inventory valuation.

2. Prolonged collection of accounts receivable: Accounts receivable were ¥3976.3B, up +4.8% YoY. Although the increase was relatively moderate compared with the revenue growth rate (+32.8%), the absolute level remains substantial, necessitating confirmation of trends in collection terms.

3. Concentration of assets in investment securities: Investment securities were ¥15982.8B, accounting for 42.9% of total assets. Market price and foreign exchange fluctuations may affect net assets and comprehensive income.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Company's Operating Income margin and Net Income margin both substantially exceeded the industry median, placing it in a distinctly strong position within the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate also substantially exceeded the industry median, placing the Company among the industry leaders in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The expansion of the Operating Income margin from 49.5% in the same period of the previous year to 54.0%, together with earnings growth of +44.7% exceeding revenue growth of +32.8%, indicates improvements in both pricing and product mix as well as cost efficiency.

2. Against a conservative financial structure characterized by an Equity Ratio of 95.3% and a debt-to-equity ratio of 0.05x, the pace of increase in accounts receivable and inventories indicates funds tied up in working capital. Further disclosures may provide scope to assess the cash conversion of earnings growth.

3. The full-year dividend forecast of ¥550 remains unchanged, and the Payout Ratio based on quarterly Net Income remains approximately 24.0%, indicating substantial dividend capacity relative to the earnings level.

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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 available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

KEYENCE delivered an exceptionally strong FY2027 Q1, with broad profit-margin expansion accompanying 32.8% year-on-year revenue growth. Revenue rose to ¥346.6bn from ¥261.1bn in FY2026 Q1. Operating income increased 44.7% to ¥187.1bn, outpacing sales growth by 11.9 percentage points. Net income grew 51.0% to ¥139.1bn, supported by both operating leverage and stronger non-operating income. Gross profit increased to ¥294.8bn and the gross margin expanded by approximately 240bp year on year to 85.0%. SG&A expense growth of 24.7% was below revenue growth, reducing the SG&A-to-sales ratio by approximately 200bp to 31.1%. Consequently, operating margin expanded by approximately 450bp to 54.0%, an exceptionally high level for a manufacturing-led electronic-application-equipment business. Net margin improved by approximately 480bp to 40.1%. Ordinary income rose 49.6% to ¥196.8bn, exceeding operating-income growth because non-operating income more than doubled to ¥9.8bn. Interest income of ¥6.1bn and foreign-exchange gains of ¥2.2bn contributed to this non-operating uplift, although the operating result remains the primary earnings driver. The effective tax rate was 29.3%, producing a tax burden ratio of 0.707, consistent with a normal tax profile. Annualized ROE was 15.7%, reaching the excellent benchmark without reliance on meaningful financial leverage. The balance sheet remains exceptionally liquid, with a 1,186.7% current ratio, a 0.05x debt-to-equity ratio, and equity representing 95.3% of total assets. The principal operational qualification is working-capital intensity: annualized DSO was 105 days, annualized inventory days were 178 days, and the annualized cash conversion cycle was 241 days. These working-capital metrics warrant attention despite the company’s substantial liquidity and strong profitability. The FY2027 full-year dividend indication is ¥550 per share; relative to Q1 annualized EPS of ¥2,294.76, this equates to an indicative payout ratio of about 24.0%, implying ample earnings capacity for shareholder distributions.

Profitability Analysis

The annualized DuPont decomposition is net profit margin of 40.1% × asset turnover of 0.372x × financial leverage of 1.05x, producing reported annualized ROE of 15.7%. The dominant source of shareholder return is profitability rather than balance-sheet leverage: leverage is minimal, while the 40.1% net margin is exceptional. Margin improvement was the largest positive change in the earnings model. Gross margin increased from approximately 82.6% to 85.0%, a gain of about 240bp, indicating favourable product mix, pricing and/or manufacturing-cost absorption. SG&A increased 24.7%, materially slower than 32.8% sales growth, and its ratio to revenue fell from approximately 33.1% to 31.1%. This operating leverage lifted operating margin from approximately 49.5% to 54.0%, a 450bp expansion. The net margin increased from approximately 35.3% to 40.1%, further aided by growth in interest income and the swing from prior-year foreign-exchange losses to a ¥2.2bn FX gain. The five-factor analysis also indicates limited financing pressure: the interest burden was 1.052 because non-operating income exceeded non-operating expense, while the tax burden of 0.707 was normal. Profitability appears principally recurring at the operating level, but part of the ordinary-income outperformance versus operating income reflects financial income and FX gains rather than core trading activity. Sustainability therefore depends on maintaining high-value-added product demand and the current favourable SG&A absorption, while interest income and FX effects may fluctuate.

Growth Assessment

Q1 growth was high quality at the operating level because revenue rose 32.8% while operating income rose faster at 44.7%. Gross profit increased 36.7%, exceeding revenue growth and demonstrating that the sales increase was not purchased through margin concessions. The company operates as a single segment centered on manufacturing and sales of electronic application equipment, making consolidated growth directly representative of its core business rather than a mix shift between disclosed segments. Ordinary income grew 49.6% and net income 51.0%, with the increment above operating-income growth partly reflecting ¥6.1bn of interest income and ¥2.2bn of FX gains. The 54.0% operating margin provides substantial resilience if demand growth normalizes, but it also sets a demanding base for further margin expansion. Receivables rose 4.8% year on year, substantially slower than revenue, which is constructive in absolute balance growth terms. Inventories increased 18.5% year on year, also below revenue growth, although their annualized days remain elevated. The growth outlook is supported by strong operating leverage and a net-cash-rich balance sheet, while the pace of conversion of sales into cash remains an important operational monitor.

Financial Health

Financial health is exceptionally strong. Current assets of ¥1,945.6bn exceeded current liabilities of ¥164.0bn by ¥1,781.7bn, resulting in working capital of ¥1,781.7bn and a current ratio of 1,186.7%. The quick ratio was also 1,125.0%, demonstrating that liquidity does not depend on inventory realization. Cash and deposits were ¥564.8bn, while investment securities were ¥1,598.3bn, equal to 42.9% of total assets. Total equity was ¥3,548.7bn, or 95.3% of total assets, and debt-to-equity was only 0.05x. Financial leverage of 1.05x confirms that the company has very limited balance-sheet gearing. Current liabilities declined 12.7% year on year to ¥164.0bn, while non-current liabilities were only ¥12.2bn. There is no maturity-mismatch concern, as current assets are more than eleven times current liabilities. Accounts payable increased 116.7% year on year to ¥23.6bn, partly improving supplier financing, but remains small relative to current assets and the company’s liquidity resources. Income taxes payable declined from ¥102.3bn to ¥59.9bn, contributing to the lower current-liability balance. The main balance-sheet consideration is asset allocation rather than solvency: the large investment-securities portfolio exposes reported equity and comprehensive income to market-value movements. Intangible assets represented only 0.7% of total assets, limiting intangible-asset concentration risk.

Notable B/S Changes

Accounts payable: +¥12.7bn (+116.7%) to ¥23.6bn - increased supplier financing partly offsets the long receivable and inventory cycle, but the movement should be monitored for payment-term changes. Inventories: +¥15.8bn (+18.5%) to ¥101.1bn - balance growth was below revenue growth, but annualized inventory days of 178 indicate elevated capital commitment and potential demand-normalization risk. Investment securities: +¥84.5bn (+5.6%) to ¥1,598.3bn - securities represent 42.9% of total assets, making capital allocation and valuation movements material to equity. Income taxes payable: -¥42.4bn (-41.4%) to ¥59.9bn - the decline contributed to lower current liabilities and does not weaken the company’s already very strong liquidity position.

Cash Flow Quality

Annualized working-capital metrics indicate a long operating cash-conversion cycle. Annualized DSO was 105 days, above both the 60-day warning threshold and the 45-day efficient-manufacturing benchmark. The root cause is that trade receivables of ¥397.6bn are large relative to annualized Q1 revenue; this ties up capital for an extended period after sales are booked. The impact is that accounting profit may convert into cash more slowly than the very high operating and net margins suggest. Annualized inventory days were 178 days, above both the 90-day warning threshold and the 60-day manufacturing benchmark. Inventory of ¥101.1bn increased 18.5% year on year, below revenue growth but still represents a material amount of production and demand-forecast exposure. The elevated inventory-days metric may reflect the company’s component availability requirements, production lead times and need to serve a broad product portfolio, but it raises the risk of inventory normalization if end-market demand slows. The annualized cash conversion cycle was 241 days, well above the 120-day warning threshold. This long cycle is only partly offset by supplier credit, as payables increased to ¥23.6bn. The company’s extraordinary liquidity, including ¥564.8bn of cash and deposits and ¥1,598.3bn of investment securities, substantially mitigates near-term funding risk from the working-capital cycle. Nonetheless, investors should monitor whether receivable and inventory days decline as revenue growth normalizes, because sustained elevation would increase capital intensity and reduce cash-conversion efficiency.

Dividend Sustainability

The indicated FY2027 full-year dividend is ¥550 per share. Based on Q1 EPS annualized to ¥2,294.76, the dividend implies an indicative payout ratio of approximately 24.0%. This is comfortably below the 60% sustainability benchmark and leaves substantial earnings retained for balance-sheet strength and future capital allocation. Retained earnings were ¥3,429.0bn, exceeding total liabilities by a wide margin. The company also held ¥564.8bn in cash and deposits plus ¥1,598.3bn in investment securities, providing a significant liquidity buffer for dividends. The prior-period dividend per share was ¥275, and the current full-year indication of ¥550 represents a doubling of the disclosed per-share amount. The absence of dividend revision information supports continuity of the stated ¥550 indication. Dividend capacity is reinforced by the 40.1% Q1 net margin and low 0.05x debt-to-equity ratio. The principal item to monitor for distribution capacity is the lengthy annualized working-capital cycle, particularly receivable and inventory days, because these can delay conversion of earnings into distributable cash.

Risk Assessment

Business risks include Demand cyclicality in factory automation and electronic application equipment could slow revenue growth from the strong 32.8% Q1 rate, while the very high 54.0% operating margin creates a demanding comparison base., Industry-specific inventory risk is elevated: annualized inventory days of 178 exceed the 90-day warning level, exposing the company to inventory adjustment, product-obsolescence and demand-forecast risk if industrial customers defer capital expenditure., Collection-cycle risk is elevated: annualized DSO of 105 days exceeds the 60-day warning level, increasing the capital tied up in customer receivables., Foreign-exchange sensitivity remains relevant because Q1 ordinary income included ¥2.2bn of FX gains, compared with FX losses in the prior-year period..

Financial risks include The annualized cash conversion cycle of 241 days exceeds the 120-day warning level. The root cause is the combination of elevated receivable and inventory days; the impact is slower conversion of reported profit into internally generated cash., Investment securities of ¥1,598.3bn account for 42.9% of total assets. Changes in market values can affect other comprehensive income and equity, as reflected in the negative ¥5.4bn valuation difference on securities within Q1 OCI., Accounts payable rose 116.7% year on year to ¥23.6bn. Although small relative to liquidity, this should be monitored to ensure the increase reflects ordinary purchasing activity rather than a structural extension of payments..

Key concerns include Working-capital efficiency is the highest-priority financial monitoring issue despite the company’s very strong liquidity and capitalization., Operating-margin expansion of approximately 450bp is a major positive, but sustaining a 54.0% margin depends on continued pricing power, product mix and cost absorption., Non-operating income rose to ¥9.8bn, with interest income and FX gains supporting ordinary-income growth; these items are less directly recurring than operating profit., The large securities portfolio makes capital allocation and market-value volatility more relevant to equity changes than debt-service risk..

Investment Implications

Key takeaways include Revenue growth of 32.8% and operating-income growth of 44.7% demonstrate strong operating leverage., Gross margin reached 85.0% and operating margin reached 54.0%, up approximately 240bp and 450bp year on year, respectively., Annualized ROE of 15.7% was achieved with only 1.05x financial leverage, indicating a high-quality return profile driven by profitability., Liquidity and solvency are exceptional, with a 1,186.7% current ratio, 95.3% equity ratio and 0.05x debt-to-equity ratio., Working-capital efficiency is the principal counterweight to the earnings strength, with annualized DSO of 105 days, DIO of 178 days and CCC of 241 days..

Metrics to watch include Revenue growth and operating-margin retention around the 54.0% Q1 level, Annualized DSO relative to the 60-day warning threshold, Annualized inventory days relative to the 90-day warning threshold, Annualized cash conversion cycle relative to the 120-day warning threshold, Interest income and FX gains as contributors to ordinary income, Investment-securities valuation changes and their effect on other comprehensive income, Progression of the ¥550 per-share FY2027 dividend indication.

Regarding relative positioning, KEYENCE’s financial profile is distinguished by exceptionally high margins, an annualized ROE above the 15% excellent benchmark, and near-debt-free capitalization. Relative to typical manufacturing benchmarks, its profitability and liquidity are materially stronger, while its receivable days, inventory days and cash conversion cycle are notably less efficient and therefore merit disproportionate monitoring.