USHIO INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥81.42B
• Operating Income: ¥4.01B
• Net Income: ¥241M
• EPS: ¥2.77

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

Verdict: A mixed FY2026 Q2—core operations were resilient but bottom-line collapsed due to large below-ordinary items and an abnormally high effective tax rate, yielding very weak ROE despite strong cash generation and a solid balance sheet. Revenue was 814.25 (−4.9% YoY) with operating income of 40.14 (−6.0% YoY), implying a stable operating margin of roughly 4.9%. Ordinary income reached 50.32 (−7.6% YoY), supported by non-operating income of 13.88 (notably interest income 6.55 and dividends 3.41). Profit before tax fell to 21.54, signaling approximately 28.8 in special losses between ordinary and pre-tax lines. Net income plunged to 2.40 (−89.6% YoY), translating to a net margin of just 0.3% and a calculated ROE of 0.1%. Gross margin came in at 36.4%, while EBITDA was 80.04 (margin 9.8%), indicating that operating cash earnings remain intact. Operating cash flow was 83.18, vastly exceeding net income (OCF/NI 34.7x), pointing to very conservative earnings or large non-cash/special items this quarter. Using the YoY changes, we estimate operating margin compressed by about 6 bps (from ~4.99% to ~4.93%), suggesting slight operating deleverage on modest revenue contraction. Total comprehensive income was 44.39, implying sizable positive OCI (~42), likely from valuation/FX effects mitigating the weak net income. Liquidity is strong: current ratio 251%, quick ratio 212%, and net cash position remains substantial (cash 699 vs total interest-bearing debt roughly 282). Leverage is conservative with D/E 0.60x and interest coverage a comfortable 27.3x. Capital intensity is manageable (D&A 39.90) and capex of 55.81 was covered by OCF, leaving positive pre-buyback FCF. Shareholder returns were robust via buybacks of 95.01, exceeding FCF and funded by the large cash pile. The effective tax rate spiked to 88.8%, severely depressing net profit—likely nonrecurring factors (impairments/special losses and tax effects) drove the bottom-line shock. Forward-looking, normalization of special losses and tax rate should lift net margin and ROE, while the strong balance sheet and cash generation provide flexibility to sustain capex and shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = 0.3% × 0.270 × 1.60 ≈ 0.1%. The largest adverse change is clearly the net profit margin, given net income fell 89.6% YoY while revenue declined only 4.9%. The business driver is significant non-recurring losses below the ordinary income line (ordinary income 50.32 vs profit before tax 21.54 suggests ~28.8 in special losses) and an unusually high effective tax rate of 88.8%, which together crushed net income. Operating profitability appears comparatively stable: operating margin of ~4.93% slipped only slightly (estimated ~6 bps compression), reflecting modest operating deleverage as revenue contracted. Asset turnover at 0.270 is low and consistent with a sizeable asset base (assets 3,015 vs revenue for the period), contributing to low ROIC (1.4%). Financial leverage at 1.60x is moderate, limiting the ability to amplify returns. Sustainability: the large special losses and extraordinary tax rate are likely one-time or episodic, so net margin should normalize absent repeat charges; operating margin appears structurally intact but sensitive to end-market demand. Watch for any trend where SG&A grows faster than revenue; while the detailed SG&A breakdown is unreported, OI decline exceeding revenue decline hints at modest negative operating leverage but not a cost-control breakdown.

Growth Assessment

Top-line contracted 4.9% YoY to 814.25, consistent with softer demand in certain end-markets. Operating income fell 6.0% YoY to 40.14, with only slight margin compression, suggesting underlying pricing/mix remained broadly stable. Ordinary income was supported by 13.88 in non-operating income (interest and dividends), cushioning operational softness. Bottom-line collapsed to 2.40 due to special losses and an elevated tax rate, not reflective of core run-rate earnings. EBITDA of 80.04 and OCF of 83.18 indicate cash earnings resilience. Revenue sustainability will depend on recovery in core segments (e.g., industrial/semiconductor exposure, UV-related solutions), for which data is not disclosed here; absent segment detail, we assume a cautious, flat-to-slightly-down near-term trajectory. Profit quality appears better than net income implies, given OCF strength; normalization of below-the-line items is a key swing factor for H2. Outlook hinges on: (1) visibility on special losses and tax normalization, (2) order trends and inventory digestion at customers, and (3) FX tailwinds given overseas exposure.

Financial Health

Liquidity is strong: current ratio 251.3% and quick ratio 212.1% comfortably exceed benchmarks; no warning on current ratio. Short-term loans are 17.48 against cash of 699.11 and current assets of 1,883.38, implying minimal maturity mismatch risk. Total liabilities are 1,128.63 vs equity 1,886.72; D/E of 0.60x is conservative and well below 2.0—no leverage warning. Interest coverage is robust at 27.31x, indicating low refinancing risk. Long-term loans of 265.00 are well covered by cash and expected cash generation. Equity ratio (calculated) is approximately 62.6% (1,886.72 / 3,015.35), highlighting a solid capital base. No off-balance sheet obligations are reported in the provided data; absence of disclosure does not rule out guarantees/lease commitments typical for the sector.

Cash Flow Quality

OCF/Net Income is 34.66x, far above the >1.0 benchmark, indicating earnings quality is better than the GAAP net income suggests; the divergence is due to special losses/non-cash items and tax effects. With capex of 55.81, implied pre-buyback FCF is roughly 27.37, positive and sufficient for maintenance capex and a baseline dividend (dividend amount unreported). Financing CF was +7.79, while share repurchases totaled 95.01, exceeding FCF and funded by the sizable cash buffer—sustainable near term given net cash, but not on a stand-alone FCF basis if repeated. Working capital specifics (AR, inventory movements) are not disclosed for prior periods; no explicit signs of manipulation can be inferred from this single-period snapshot. The strong OCF despite weak NI supports the view that the quarter’s net loss compression was non-cash/one-time heavy.

Dividend Sustainability

Reported payout ratio appears mechanically high at 2697.9% due to depressed net income, and thus not indicative of true cash affordability. With OCF of 83.18 and capex of 55.81, there is room for ordinary dividends from FCF in a normalized earnings environment, but the exact DPS and total dividend paid are unreported. Buybacks of 95.01 exceeded FCF and were effectively funded from cash on hand; continuation at this pace would rely on balance sheet strength rather than recurring FCF. Near-term sustainability of shareholder returns is supported by net cash and liquidity; medium-term sustainability requires normalization of net income and maintenance of OCF. Policy outlook cannot be assessed precisely without management guidance; assume a preference for stable dividends with tactical buybacks, conditional on cash levels and visibility.

Risk Assessment

Business Risks:

• End-market cyclicality (industrial/semiconductor-related demand) affecting revenue and utilization.
• Product mix and pricing pressure potentially limiting operating margin expansion.
• Dependence on overseas demand and FX fluctuations impacting revenue and margins.
• Execution risk in new product/technology ramp (e.g., UV/optical solutions) not disclosed here.

Financial Risks:

• One-time special losses (~28.8 between ordinary and pre-tax) may recur if impairments/restructurings continue.
• Tax rate volatility (effective tax rate 88.8%) introduces bottom-line uncertainty.
• Shareholder returns (95.01 buybacks) exceeding FCF, relying on cash reserves if sustained.
• Low ROIC (1.4%) versus cost of capital raises long-term capital efficiency concerns.

Key Concerns:

• Net income collapse (−89.6% YoY) despite stable operating earnings.
• ROE at 0.1% driven by non-recurring items; credibility of earnings trajectory depends on normalization.
• Inventory and AR levels are sizable (293.20 and 346.17) amid revenue decline; without turnover data, there is potential working capital risk.
• Non-operating income dependence (interest/dividends 9.96) partially supporting ordinary income.

Investment Implications

Key Takeaways:

• Core operations are holding up with only slight margin compression; the net income shock is driven by below-the-line items.
• Cash generation and liquidity are strong, enabling continued investment and shareholder returns near term.
• Capital efficiency is weak (ROIC 1.4%, ROE 0.1%); recovery requires margin normalization and better asset turnover.
• Balance sheet provides ample flexibility (net cash position and 62.6% equity ratio).
• Visibility on special losses and tax normalization is the critical catalyst for earnings recovery.

Metrics to Watch:

• Details and recurrence of special losses and drivers of the 88.8% effective tax rate.
• Operating margin trajectory vs revenue (operating leverage) in H2.
• Order backlog and book-to-bill; inventory turns and AR days to gauge demand and WC health.
• OCF vs NI gap normalization and sustaining positive FCF after capex.
• Capital allocation pace (buybacks/dividends) vs FCF and cash balance.

Relative Positioning: Within Japanese industrial/optical component peers, Ushio exhibits stronger liquidity and lower leverage than average, but currently lags on capital efficiency (ROIC/ROE) due to one-time charges and tax effects; normalization could restore comparability, but sustained improvement in asset turnover and margin is needed to close the 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