Shimadzu Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥256.34B
• Operating Income: ¥31.58B
• Net Income: ¥23.63B
• EPS: ¥81.79

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

Shimadzu (7701) delivered a solid FY2026 Q2 with moderate top-line growth and faster profit expansion, indicating modest margin improvement and disciplined cost control. Revenue grew 2.0% YoY to 2,563.4, while operating income rose 4.5% YoY to 315.8, and net income increased 10.9% YoY to 236.3. Gross margin stood at a healthy 45.2% (gross profit 1,158.2), reflecting favorable mix and/or pricing amid stable input costs. Operating margin improved to 12.3%, supported by SG&A ratio of 32.9% (SG&A 842.4) and well-contained non-operating items. We estimate operating margin expanded by roughly 28 bps YoY (from ~12.0% to ~12.3%) given operating income grew faster than sales. Net margin improved to about 9.2%, an estimated expansion of ~74 bps YoY (from ~8.5%), aided by a modest effective tax rate of 24.7% and limited interest expense (1.46). Ordinary income rose 10.4% YoY to 313.5, implying ordinary margin expansion of ~93 bps to ~12.2%. Earnings quality is strong: operating cash flow of 303.8 exceeds net income (OCF/NI 1.29x), indicating good cash conversion and limited accrual risk in the quarter. The balance sheet is very conservative: current ratio 333%, quick ratio 269%, de facto net cash of ~1,513 (cash 1,522 minus interest-bearing debt ~8.9), and a high equity buffer (equity/asset ~76%). ROE is 4.6% per DuPont, constrained by low leverage (1.31x) and modest asset turnover (0.381), despite a reasonable net margin. ROIC at 6.6% sits just below the 7–8% management target range commonly pursued by precision instrument peers, suggesting room for capital efficiency improvements. Non-operating items are small (non-op income 14.0; expenses 16.3), with interest income (6.9) partly offsetting expenses; earnings are primarily operational. While dividends are not disclosed this quarter, a calculated payout ratio of 82.7% looks elevated versus common sustainability thresholds, warranting monitoring against FCF once capex is disclosed. Overall, the quarter points to stable demand in core businesses and disciplined execution, with stronger cash conversion and margins, but medium-term upside will depend on accelerating growth, lifting ROIC above target, and sustaining margin gains without over-reliance on a high payout. Given limited disclosures on capex/FCF and segment detail, our forward view is cautiously constructive but data-constrained. Watch FX, regional demand (notably China and the U.S.), and order intake for analytical instruments/medical systems as key drivers for 2H.

Profitability Analysis

DuPont ROE decomposition and margin dynamics:

• Step 1 (ROE = Net Profit Margin × Asset Turnover × Financial Leverage): 4.6% = 9.2% × 0.381 × 1.31x.
• Step 2 (Largest change driver): Among the three, margin improved YoY (net margin +~74 bps by our estimate), while leverage stayed very low and likely stable; asset turnover remains modest. Margin change contributed most to ROE improvement.
• Step 3 (Business reason): Operating income grew faster than revenue (+4.5% vs +2.0%), implying operating leverage and/or product mix shift to higher-margin instrument lines and service/consumables, combined with tight SG&A control. A 24.7% effective tax rate and minimal interest expense also supported net margin.
• Step 4 (Sustainability): Margin gains look mainly operational and could be sustainable if mix (after-sales services, high-end instruments) and pricing discipline hold. However, modest top-line growth suggests limited operating leverage headroom unless orders accelerate; tax/interest tailwinds are steady but not expanding drivers.
• Step 5 (Concerning trends): None acute this quarter. We cannot compare SG&A growth vs revenue due to missing YoY SG&A, but the SG&A ratio at 32.9% appears controlled. Asset turnover at 0.381 signals capital intensity/working capital drag; without higher growth or asset efficiency improvements, ROE will remain capped by low leverage. Additional margin context: gross margin 45.2%; operating margin 12.3%; ordinary margin ~12.2%; EBITDA margin 16.2%. Interest coverage is exceptionally high at 216x, underscoring minimal financial drag.

Growth Assessment

Revenue grew 2.0% YoY to 2,563.4, a modest pace consistent with stable but not booming demand in analytical and medical systems. Operating income growth of 4.5% outpaced sales, evidencing positive operating leverage and/or improved mix. Net income rose 10.9%, aided by tax/interest effects and disciplined expenses. Non-operating contributions were minor (interest income 6.9; non-op expenses 16.3), implying quality of growth is predominantly operational. Without segment or regional disclosure, we assume broad-based stability rather than outsized contributions from one-time factors. Sustainability hinges on order trends, service attachment rates, and pricing in key geographies; a soft macro or FX headwinds (stronger JPY) could temper 2H. Near-term outlook: modest growth with incremental margin expansion possible if mix benefits persist; medium term requires capex efficiency and working capital rotation to lift ROIC above 7–8%.

Financial Health

Liquidity is very strong: current ratio 333%, quick ratio 269%, and working capital of 3,154.4. No warnings (Current Ratio well >1.0). Solvency robust: debt-to-equity 0.31x with negligible interest-bearing debt (short-term 8.84; long-term 0.04) against cash of 1,522.3, implying net cash of ~1,513. Equity/asset ratio approximates 76.4% (total equity 5,140.1 / total assets 6,725.0), indicating a highly capitalized balance sheet. Maturity mismatch risk appears minimal: current assets (4,509.2) comfortably exceed current liabilities (1,354.8); short-term loans are de minimis relative to cash. No off-balance sheet obligations are reported in the provided data; none assessed.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income at 1.29x suggests healthy cash conversion and limited accrual risk this quarter. Free cash flow cannot be calculated due to missing capex/investing CF; therefore, sustainability of cash generation for shareholder returns and capex cannot be fully assessed. Working capital appears sizable (AR 1,311.5; inventory 861.8; AP 393.1). With OCF positive and strong, we see no signs of aggressive working capital management, but lack of period-over-period WC detail limits detection of timing effects. Financing CF was -142.7, likely reflecting dividends and/or buybacks and minor debt movements; comfortably covered by OCF in the period.

Dividend Sustainability

The calculated payout ratio of 82.7% is elevated versus a typical <60% sustainability benchmark, implying limited buffer if earnings soften. That said, net cash (~1,513) and strong OCF (303.8) provide near-term capacity to fund dividends. FCF coverage cannot be assessed due to missing capex; if capex requirements are sizable (given D&A 99.1), true FCF headroom may be narrower than OCF suggests. Policy outlook: with ROE at 4.6% and ROIC at 6.6% (below 7–8% target range), management may balance shareholder returns with reinvestment to lift capital efficiency; a stable or modestly progressive dividend seems plausible, but further increases would ideally be underpinned by clearer FCF visibility and ROIC improvement.

Risk Assessment

Business Risks:

• Subdued revenue growth (+2.0% YoY) limits operating leverage and ROE improvement.
• Asset turnover at 0.381 indicates capital intensity/working capital tie-up, constraining ROIC and ROE.
• Dependence on analytical/medical capex cycles; delayed customer budgets could slow orders.
• Product mix shifts or pricing pressure could reverse recent margin gains.

Financial Risks:

• Payout ratio at 82.7% reduces buffer against earnings volatility absent confirmed FCF strength.
• FX volatility (JPY fluctuations) impacting overseas revenue/earnings translation and component costs.
• Reinvestment needs (capex/R&D) may elevate cash outflows; investing CF not disclosed limits visibility.

Key Concerns:

• ROIC at 6.6% below the typical 7–8% target range suggests room for capital efficiency improvement.
• Limited disclosure on capex, investing CF, dividends, and segment performance constrains forward assessment.
• Working capital scale (AR and inventory) exposes cash flow to demand/supply chain swings.

Investment Implications

Key Takeaways:

• Solid quarter: revenue +2.0%, operating income +4.5%, net income +10.9%, with margin expansion.
• Strong cash conversion (OCF/NI 1.29x) and a fortress balance sheet (net cash ~1,513; equity/asset ~76%).
• ROE 4.6% held back by low leverage and modest asset turnover despite decent margins.
• ROIC 6.6% just below management-type targets; efficiency gains needed for rerating.
• Dividend payout appears high (82.7%); sustainability depends on FCF and capex cadence.

Metrics to Watch:

• Order intake/backlog and regional sales mix (particularly China/U.S.).
• Gross and operating margin trajectory; SG&A ratio versus revenue growth.
• Capex and investing cash flows to gauge FCF and ROIC path.
• Working capital turns (DSO/DIO/DPO) and asset turnover.
• FX sensitivity and hedging impacts on profitability.

Relative Positioning: Versus domestic precision instrument peers, Shimadzu shows robust balance sheet strength and cash conversion with steady margins, but trails best-in-class on ROIC and ROE due to modest asset turnover and conservative leverage; scope exists to close the gap through mix, service expansion, and capital efficiency.

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