SUBARU CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.39T
• Operating Income: ¥102.67B
• Net Income: ¥90.44B
• EPS: ¥123.90

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Subaru’s FY2026 Q2 (cumulative) shows solid top-line growth but a sharp profit squeeze, with margins compressing significantly despite very strong cash generation. Revenue rose 5.3% YoY to 23,856.62, but operating income fell 53.8% to 1,026.70 and net income declined 44.5% to 904.15. Gross profit was 3,856.85, implying a gross margin of 16.2%, while EBITDA reached 2,253.91 for a 9.4% margin. The operating margin fell to 4.3%, down from an implied ~9.8% in the prior year, reflecting pronounced deleveraging on modest sales growth. Net margin landed at 3.8% versus an implied ~7.2% last year, underscoring broad-based cost and pricing headwinds and/or higher non-operating burdens despite a 30.1% effective tax rate. Cash flow quality was a notable positive: operating cash flow of 2,903.98 was 3.21x net income, and free cash flow of 1,577.21 covered shareholder returns and capex this period. Balance sheet strength remains sound with an equity ratio of 52.8% and a reported D/E of 0.89x, although current liabilities were unreported, limiting precise liquidity assessment. ROE printed at 3.3% (DuPont: 3.8% margin × 0.457 turnover × 1.89x leverage), and ROIC of 2.6% is below a typical auto OEM cost of capital, signaling capital efficiency pressure. Inventory of 6,468.34 and receivables of 4,013.50 suggest working capital remains sizable; payables were 4,386.74, and cash & equivalents stood at 10,232.45. Equity-method contribution was minimal at 0.66, confirming low reliance on affiliate earnings. The payout ratio (calculated) of 93.2% appears elevated against earnings, but FCF coverage of 1.87x mitigates near-term risk; sustainability hinges on margin recovery. The steep YoY margin compression implies factors such as mix shifts, increased incentives, cost inflation (materials/logistics), or FX normalization vs an unusually favorable prior base. Forward-looking, management will need to restore price–cost balance, stabilize manufacturing costs, and sustain disciplined incentives while executing electrification spend within FCF. Overall, the quarter’s cash performance and balance sheet resilience are positives, but profitability normalization is the key watch item for the next two quarters.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 3.8% × Asset Turnover 0.457 × Financial Leverage 1.89x = ROE 3.3% (matches reported). The biggest delta YoY is the margin component: operating income fell 53.8% on +5.3% revenue, compressing the operating margin from an implied 9.8% to 4.3% (-550 bps). Asset turnover at 0.457 is subdued for an auto OEM given large asset bases and likely reflects cumulative H1 seasonality and elevated inventories. Financial leverage at 1.89x is moderate and not the driver of the ROE decline. Business drivers: margin pressure likely stems from higher incentives in North America, input cost normalization, model mix shifts, and/or warranty/recall costs; FX tailwinds may have moderated vs the prior-year base. Sustainability: absent structural pricing or cost issues, some compression appears cyclical; however, the magnitude (-550 bps) suggests more than one-time items and requires evidence of price discipline and cost controls to recover. Concerning trends: revenue growth positive but negative operating leverage (OP down >50% on +5% sales) is a red flag; SG&A was 2,006.66 (8.4% of sales), but lack of YoY breakdown obscures whether overhead growth outpaced sales.

Growth Assessment

Top-line growth was +5.3% YoY to 23,856.62, indicating demand resilience and/or price/mix benefits, but conversion to profit weakened notably. Operating income fell 53.8% to 1,026.70, and net income declined 44.5% to 904.15, pointing to stronger headwinds below gross profit and in non-operating items. Gross margin was 16.2%; the compression at operating level implies higher SG&A ratio or lower manufacturing absorption. EBITDA margin at 9.4% versus operating margin at 4.3% suggests D&A (1,227.21) is a sizable headwind, consistent with ongoing capex and product investment. Equity-method income was negligible (0.66), so core operations drove the result. Outlook hinges on: stabilization of incentives, normalization of material/logistics costs, production efficiency gains, and FX. A recovery in operating margin toward mid-to-high single digits would be the primary catalyst for earnings normalization. Near term, inventory management and disciplined retail incentives will determine conversion of revenue growth into profit.

Financial Health

Liquidity: Current assets were 32,397.87; current liabilities were unreported, so current ratio and quick ratio cannot be calculated—liquidity assessment is limited. Solvency: Equity ratio at 52.8% indicates a strong capital base; reported D/E of 0.89x is moderate and below typical stress thresholds (<1.5x benchmark). Cash & equivalents totaled 10,232.45, providing a substantial liquidity buffer. Maturity mismatch: With current liabilities not disclosed, we cannot quantify short-term refinancing needs versus liquid assets; we note sizeable receivables (4,013.50) and inventories (6,468.34) supporting working capital, and payables at 4,386.74. Off-balance sheet: No explicit disclosures in the provided data. No explicit warning thresholds triggered (Current Ratio and Interest Coverage not calculable; D/E well below 2.0).

Cash Flow Quality

OCF of 2,903.98 was 3.21x net income (904.15), indicating high earnings quality this period. Free cash flow was 1,577.21 after capex of 1,082.07 and other investing outflows; FCF comfortably covered share repurchases of 167.12 and likely dividend outflows (not disclosed). The strong OCF despite profit compression suggests favorable working capital release or robust cash profitability; without component details, the precise driver (inventory drawdown, payables, or receivables) cannot be isolated. OCF/NI well above the 0.8 threshold removes immediate quality concerns. Sustainability: Continued positive FCF depends on maintaining operating cash conversion while funding electrification and capacity investments.

Dividend Sustainability

The calculated payout ratio of 93.2% is high versus the <60% benchmark for sustainability, implying dividends are stretched relative to current earnings. However, FCF coverage was 1.87x, indicating room to fund dividends and buybacks from cash generation this period. Balance sheet strength (equity ratio 52.8%, large cash balance) provides additional cushion. Forward view: with ROIC at 2.6% and operating margin compressed, sustaining a high payout would depend on margin recovery; otherwise, maintaining capital allocation to EV/hybrid programs may require prioritization over incremental shareholder returns.

Risk Assessment

Business Risks:

• Pricing and incentive pressure in key markets (notably North America) eroding margins
• Input cost and logistics inflation reducing gross-to-operating margin conversion
• Warranty/recall expense volatility impacting operating income
• Product mix shifts (model transitions) affecting profitability
• Supply chain constraints (semiconductors/components) disrupting production

Financial Risks:

• Low ROIC (2.6%) vs implied WACC, risking value dilution if not improved
• High payout ratio (93.2%) relative to earnings during margin trough
• Potential working capital volatility given large inventories and receivables
• Limited visibility on current liabilities and interest coverage (unreported), creating liquidity assessment gaps

Key Concerns:

• Operating margin compressed by ~550 bps YoY to 4.3%
• Net margin down to 3.8% from an implied ~7.2% YoY
• ROE at 3.3% and asset turnover at 0.457 indicate subdued capital efficiency
• Dependence on core operations with negligible equity-method income, limiting cushion from affiliates
• Execution risk on electrification and regulatory compliance investments while preserving FCF

Investment Implications

Key Takeaways:

• Revenue growth (+5.3% YoY) but significant profit squeeze (OP -53.8%, NI -44.5%)
• Operating margin 4.3% vs implied ~9.8% last year; urgent need for price–cost rebalancing
• Cash generation strong (OCF/NI 3.21x; FCF 1,577.21) supporting near-term capital allocation
• Balance sheet solid (equity ratio 52.8%, D/E 0.89x), providing resilience
• Capital efficiency weak (ROIC 2.6%, ROE 3.3%); improvement required to exceed cost of capital

Metrics to Watch:

• Operating margin trajectory and incentive spending per unit
• Gross-to-operating margin bridge (manufacturing costs, logistics, warranty)
• Working capital turns (inventory days, receivable/payable days) and OCF sustainability
• Capex intensity vs product pipeline and its impact on ROIC
• FX sensitivity (USD/JPY) and regional mix
• Dividend payout vs FCF and buyback cadence

Relative Positioning: Within global auto OEMs, Subaru’s balance sheet and cash generation this period are strengths, but profitability and capital efficiency lag peer medians; recovery in operating margin is the key determinant for narrowing 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
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