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

SUBARU (7270) reported FY2026 Q2 consolidated IFRS results showing modest top-line growth but a sharp contraction in profitability. Revenue rose 5.3% YoY to 23,856.62 (100M JPY), demonstrating continued demand resilience across key markets. However, operating income fell 53.8% YoY to 1,026.70, compressing the operating margin to roughly 4.3%, indicative of substantial cost headwinds and/or unfavorable mix. Gross profit was 4,839.81 with a gross margin of 20.3%, suggesting pressure from materials, logistics, incentives, or FX not fully offset by pricing. EBITDA was 2,148.02, yielding a 9.0% margin, which together with depreciation of 1,121.32 highlights a capital-intensive base typical of global auto OEMs. Net income declined 44.5% YoY to 904.15, and the effective tax rate was elevated at 44.7%, further dampening bottom-line conversion. DuPont analysis shows a low ROE of 3.3%, driven by a slim net margin (3.8%), moderate asset turnover (0.457), and conservative leverage (1.89x). The balance sheet remains strong with an equity ratio of 52.8% and total equity of 27,580.65; liabilities to equity stand at 0.86x, pointing to solid solvency. Liquidity appears ample: cash and equivalents are 9,414.60 and operating cash flow reached 2,369.73. Free cash flow was positive at 810.91 after investing outflows of 1,558.82 (including capex of 814.40), underscoring healthy cash generation even in a margin-down environment. Working capital items disclosed (AR 4,117.23; inventories 6,673.91; AP 4,257.78) suggest ongoing inventory normalization needs monitoring, though detailed current liability data were not reported. Capital returns included 600.03 of share repurchases; dividend details were not disclosed in XBRL, but a calculated payout ratio of 93.2% and FCF coverage of 0.96x suggest tight headroom if earnings softness persists. The ordinary income line and interest metrics were unreported, limiting full ratio diagnostics, but the absence of stress in cash flows and the strong equity base mitigate near-term financial risk. Overall, the quarter reflects revenue resilience offset by cost pressure and possibly FX or product-cycle effects, with cash flow quality strong and the balance sheet conservative. Forward focus should be on margin recovery drivers (pricing, mix, cost control) and execution on electrification and safety-tech investments. Data gaps (e.g., R&D, debt breakdown, current liabilities, dividends) temper precision, but the core narrative is clear: profitability compression amid solid cash generation and robust solvency.

Profitability Analysis

ROE_decomposition: ROE 3.3% = Net margin 3.8% × Asset turnover 0.457 × Financial leverage 1.89x. The weak net margin is the primary drag, with moderate turnover and modest leverage providing limited offset. margin_quality: Gross margin 20.3% and EBITDA margin 9.0% indicate cost pressure and higher operating costs; operating margin ~4.3% is low for recent cyclical highs and consistent with the 53.8% YoY operating income decline. Elevated effective tax rate (44.7%) further depressed net margin. operating_leverage: Revenue grew 5.3% YoY while operating income fell 53.8% YoY, implying negative operating leverage due to cost of sales inflation, possibly higher incentives, FX headwinds, or product mix. SG&A of 1,996.58 equates to ~8.4% of revenue; without prior-year SG&A, the precise deleveraging split cannot be quantified.

Growth Assessment

revenue_sustainability: Top-line growth of 5.3% suggests stable unit momentum and/or pricing power, but the magnitude is modest versus industry peers benefitting from price/mix. Inventories of 6,673.91 warrant monitoring for demand-supply alignment. profit_quality: EBITDA of 2,148.02 and OCF of 2,369.73 (OCF/NI 2.62x) indicate profits are underpinned by cash generation, aided by non-cash D&A (1,121.32). However, the sharp decline in operating income signals underlying margin fragility. outlook: Key swing factors for 2H include FX (USD/JPY, CAD/JPY), incentive discipline, input cost normalization, and new model mix. Re-acceleration in operating margin will likely hinge on cost-down execution and stable pricing; elevated tax rate normalization could also support net margins if one-offs are at play.

Financial Health

liquidity: Cash and equivalents are 9,414.60. Current assets total 31,912.20; current liabilities were not disclosed, so current and quick ratios are not calculable. Disclosed working capital is presented as current assets due to missing current liabilities, limiting precision. solvency: Equity ratio is 52.8% (equity 27,580.65 vs assets 52,182.49), indicating a conservative capital structure. Total liabilities to equity of 0.86x reflect low balance-sheet risk. capital_structure: Interest-bearing debt details were unreported, and interest coverage cannot be calculated. Nonetheless, low leverage implied by the equity ratio and robust cash position suggest ample covenant and refinancing headroom.

Cash Flow Quality

earnings_quality: OCF/Net income is 2.62x, indicating strong cash conversion despite margin compression. Non-cash D&A (1,121.32) is significant relative to EBIT, appropriate for an auto OEM footprint. FCF_analysis: Free cash flow was 810.91 after investing CF of -1,558.82 and capex of -814.40, demonstrating capacity to self-fund investments. Financing CF of -1,257.26 included -600.03 of buybacks, leaving net cash outflow manageable given starting cash. working_capital: AR 4,117.23, inventories 6,673.91, and AP 4,257.78 indicate a typical OEM working-capital structure; detailed movements are not disclosed, but the strong OCF suggests either stable working capital or moderate release. Current liability details are missing, constraining cycle diagnostics.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio of 93.2% appears high versus current earnings run-rate; however, DPS and total dividends paid were not disclosed, so this ratio likely reflects a separate period basis and should be treated with caution. FCF_coverage: FCF coverage is 0.96x, implying dividends are approximately covered by free cash flow on the disclosed basis, but with limited buffer in a down-margin environment. policy_outlook: Given strong equity (52.8% ratio) and cash generation, the company retains capacity to support shareholder returns, yet the sharp YoY profit decline and high calculated payout suggest prudence until margin recovery is evident. Explicit dividend guidance is not available in the provided data.

Risk Assessment

Business Risks:

• Input cost and logistics volatility impacting gross margin
• FX fluctuations (USD/JPY, CAD/JPY) affecting revenue and cost bases
• Incentive normalization and competitive pricing pressure in US and other core markets
• Product mix risk tied to new model cadence and electrification transition
• Supply chain constraints and potential semiconductor tightness
• Regulatory and safety/recall risks inherent to auto OEMs

Financial Risks:

• Earnings sensitivity to FX and commodities translating into volatile margins
• Limited buffer if payout remains high relative to earnings and FCF
• Potential working-capital build if demand slows, pressuring OCF
• Information gaps on interest-bearing debt and current liabilities hinder full coverage assessment

Key Concerns:

• Operating income down 53.8% YoY despite 5.3% revenue growth
• Elevated effective tax rate of 44.7% suppressing net income
• High calculated payout ratio (93.2%) alongside margin compression
• Unreported ordinary income, interest expense, and dividend details limit precision

Investment Implications

Key Takeaways:

• Revenue resilient (+5.3% YoY) but profitability materially compressed
• Gross margin 20.3% and operating margin ~4.3% indicate cost/mix headwinds
• Cash generation remains robust: OCF 2,369.73 and FCF 810.91
• Balance sheet conservative with 52.8% equity ratio and liabilities/equity 0.86x
• ROE at 3.3% is below cost of equity; margin recovery is the key lever
• Shareholder returns include 600.03 of buybacks; dividend details unreported

Metrics to Watch:

• Operating margin trajectory and unit economics per region
• Inventory levels (6,673.91) and days inventory outstanding
• FX rates and hedging impacts on gross margin
• Capex and R&D intensity versus electrification/ADAS roadmap
• Effective tax rate normalization
• OCF/NI ratio and FCF durability amid margin pressures

Relative Positioning: Within global auto OEMs listed on the TSE, SUBARU shows solid balance-sheet strength and cash conversion but currently trails recent peer profitability due to sharper margin compression; sustained pricing discipline and cost control will be critical 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