NIKON CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥312.92B
• Operating Income: ¥-4.83B
• Net Income: ¥5.38B
• EPS: ¥16.28

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: A weak quarter operationally for Nikon with an operating loss, but bottom-line turned positive due to a large tax benefit and non-operating factors. Revenue was 3,129.15 (100M JPY), down 6.0% YoY, reflecting softer demand and/or shipment timing in core segments. Gross profit was 1,312.26 with a gross margin of 41.9%, but SG&A of 1,374.99 outpaced gross profit, driving an operating loss of -48.29 (-1.5% operating margin). Operating income fell 57.3% YoY, highlighting negative operating leverage as costs did not flex down with revenue. Despite a pretax loss of -52.65, net income came in at 53.56 (+80.7% YoY) as income tax was a negative -106.47 (tax benefit), resulting in an unusually high effective tax rate metric (202.2%), implying one-off tax effects. EBITDA was positive at 163.93 (5.2% margin), underscoring that depreciation (212.22) and fixed cost base weighed heavily at the operating line. Cash flow quality was poor: operating cash flow was -54.16, implying OCF/NI of -1.01x, and free cash flow was -230.38, driven by working capital and capex. Financing inflow of 174.39 partially supported liquidity, while dividends of -82.18 were paid despite negative FCF. Equity remains solid with total equity of 6,546.24 (equity ratio 56.6%) and D/E of 0.76x, providing balance-sheet flexibility. Inventory stood high at 3,386.72 (about 29% of total assets), increasing downside risk if demand normalizes slowly. ROE was low at 0.8% (NPM 1.7%, asset turnover 0.271x, leverage 1.76x), and ROIC printed at -0.4%, signaling sub-par capital efficiency. Comprehensive income of 235.15 materially exceeded net income, likely reflecting FX and valuation gains, which are not core-operating. Margin comparison in basis points is directionally negative at the operating level given the swing to an operating loss; precise bps YoY change cannot be computed due to missing prior-period margin data. Forward-looking, recovery hinges on cost actions, inventory normalization, and demand stabilization in precision equipment and imaging, while capex and tax effects should be monitored for sustainability.

Profitability Analysis

ROE decomposition: ROE 0.8% = Net Profit Margin 1.7% × Asset Turnover 0.271 × Financial Leverage 1.76x. The biggest swing factor is the net profit margin, which turned positive only through a outsized tax benefit despite an operating loss (operating margin -1.5%). Asset turnover at 0.271x is low, reflecting a capital-intensive balance sheet with high inventories and subdued revenue. Leverage at 1.76x is moderate and not the primary driver. Business reasons: weaker revenue (-6.0% YoY) and a heavy fixed cost base (SG&A 1,375 vs gross profit 1,312) created negative operating leverage, while tax benefits flipped the bottom line to profit. Sustainability: the tax-driven NPM uplift is likely one-time; without operating margin recovery, ROE may revert lower. Concerning trends include SG&A running above gross profit and EBITDA margin (5.2%) insufficient to cover depreciation, indicating under-absorption and pressure on cash conversion.

Growth Assessment

Top-line contracted by 6.0% YoY to 3,129.15, indicating demand softness or shipment deferrals in key businesses. Operating income declined 57.3% YoY to -48.29, evidencing negative operating leverage. Net income rose 80.7% YoY to 53.56, but this was tax-driven rather than operating improvement. Equity-method income contributed 19.54, a helpful but secondary support versus core operations. Revenue sustainability is uncertain near term given elevated inventories (3,386.72) that may precede pricing pressure if demand remains soft. Profit quality is low this quarter given OCF/NI of -1.01x and reliance on tax benefits. Outlook hinges on cost control, mix improvements in higher-margin products, and normalization of working capital to restore positive operating cash flow. Absent concrete segment data, assume mid-single-digit revenue headwinds with potential sequential stabilization if end-markets improve.

Financial Health

Liquidity: Current ratio is not calculable due to missing current liabilities; however, current assets are sizable at 6,395.09. No explicit warning on current ratio <1.0 can be made. Solvency: D/E is 0.76x, within conservative bounds (<1.5x). Equity ratio is 56.6%, indicating a solid capital base. Maturity mismatch risk cannot be directly assessed as short-term borrowings and current liabilities are unreported. Cash & equivalents were 1,606.33 and financing inflow was 174.39, suggesting access to funding. Off-balance sheet obligations are not disclosed in the provided data.

Cash Flow Quality

OCF was -54.16 against net income of 53.56, yielding OCF/NI of -1.01x, a quality flag indicating earnings not backed by cash. FCF was -230.38 after capex of -186.62, implying the business is currently consuming cash. Dividends (-82.18) were not covered by FCF (FCF coverage -1.38x), relying on financing inflows (174.39). Working capital appears to be a headwind, consistent with high inventory levels; potential signs of working capital strain include inventory build relative to revenue softness. There is no direct evidence of manipulation, but monitoring receivables and payables is warranted once disclosed.

Dividend Sustainability

Calculated payout ratio is elevated at 311.4%, and cash dividends paid (82.18) exceed current free cash flow (-230.38), indicating unsustainable coverage this quarter. With OCF negative and capex ongoing, dividends are effectively funded by the balance sheet/financing. While equity and leverage provide short-term capacity (equity ratio 56.6%, D/E 0.76x), sustaining dividends without operating cash recovery increases risk. Policy outlook likely emphasizes stable dividends, but near-term sustainability depends on restoring positive OCF and improving operating margins.

Risk Assessment

Business Risks:

• Demand cyclicality in precision equipment and imaging leading to revenue volatility (-6.0% YoY).
• Negative operating leverage as SG&A exceeds gross profit, producing operating losses.
• High inventory (3,386.72; ~29% of assets) exposing the company to write-down and discounting risk if demand softens.
• Dependence on tax effects and non-operating items (equity-method income 19.54) to support bottom-line profit.
• Execution risk in cost reduction and working capital normalization.

Financial Risks:

• Poor cash conversion (OCF/NI -1.01x) and negative FCF (-230.38) necessitating financing inflows (174.39).
• Potential liquidity pressure if current liabilities are substantial (not disclosed) against negative OCF.
• Currency fluctuation risk affecting margins and comprehensive income (large OCI vs NI).
• Capital efficiency weakness (ROIC -0.4%) indicating low returns on invested capital.

Key Concerns:

• One-off tax benefit (-106.47 tax) underpinning positive net income despite pretax loss.
• EBITDA margin (5.2%) insufficient to cover depreciation (212.22), indicating underutilization of assets.
• Dividend coverage strained with FCF negative and payout elevated.
• Limited visibility due to unreported line items (current liabilities, interest, segment detail) obscuring true liquidity and interest coverage.

Investment Implications

Key Takeaways:

• Operational weakness with an operating margin of -1.5% amid a 6.0% YoY revenue decline.
• Net income positive due to tax benefits; underlying profitability remains pressured.
• Cash flow quality is weak: OCF negative and FCF -230.38 despite dividends paid.
• Balance sheet remains a relative strength (equity ratio 56.6%, D/E 0.76x).
• High inventories elevate downside risk and weigh on cash conversion.
• ROE low at 0.8% and ROIC negative at -0.4%, pointing to sub-par capital efficiency.

Metrics to Watch:

• Operating margin recovery and SG&A trajectory versus revenue.
• OCF/NI ratio and working capital changes (inventory, receivables, payables).
• Order backlog and book-to-bill in precision equipment; product mix in imaging.
• Capex discipline versus cash generation and ROIC trend.
• FX sensitivity (USD/JPY, EUR/JPY) and impact on gross margin and OCI.
• Tax items and one-off effects that distorted the quarter (deferred tax movements).

Relative Positioning: Within Japanese precision equipment and imaging peers, Nikon currently shows weaker cash conversion and margin resilience this quarter, offset by a stronger equity base and moderate leverage; near-term performance hinges on cost normalization and working capital management versus peers who may be further along in inventory and cost adjustments.

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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