NIKON CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥312.92B
• Operating Income: ¥-4.83B
• Net Income: ¥2.99B
• 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

For FY2026 Q2 (IFRS, consolidated), Nikon reported revenue of 3,129.15 (100M JPY), down 6.0% YoY, reflecting softer top-line momentum across key segments. Gross profit was 1,520.70 with a strong gross margin of 48.6%, but SG&A expenses of 1,464.95 absorbed nearly all gross profit, resulting in an operating loss of -48.29 and an operating margin of approximately -1.5%. Despite the operating loss, net income came in positive at 53.56 (+80.7% YoY), implying material below-the-line support such as equity-method gains (13.66 reported) and/or other non-operating items not fully disclosed in the provided dataset. The discrepancy between a pre-tax loss (-52.65) and positive net income highlights missing line items (e.g., gains from discontinued operations, tax credits, and non-controlling interests effects) and limits the clarity of earnings quality from the P&L alone. EBITDA was 177.70, an EBITDA margin of 5.7%, indicating some cash earnings resilience despite operating weakness. Cash flow from operations was robust at 384.73, yielding an OCF/Net Income ratio of 7.18x, which typically signals conservative accruals and favorable working capital movements in the period. However, free cash flow, defined here as OCF plus total investing cash flows, was slightly negative at -2.95 due to sizable investing outflows (-387.68), suggesting continued reinvestment and/or portfolio actions in excess of operating inflows. The balance sheet remains strong with total equity of 6,546.24 and an equity ratio of 56.6%; total liabilities are 4,712.91, and the liabilities-to-equity ratio is 0.72x (note: this is not the conventional interest-bearing debt-to-equity, which is unreported). Liquidity indicators like current and quick ratios cannot be computed due to missing current liabilities and cash details by line item, but cash and equivalents total 1,635.90, providing a meaningful liquidity buffer. Inventories are elevated at 3,075.33, roughly equivalent to the half-year revenue run-rate, which warrants monitoring for potential normalization risk and impact on gross margin/working capital. The reported ROE is a modest 0.8%, derived from a thin net margin (1.7%), low asset turnover (0.271), and moderate financial leverage (1.76x). The effective tax rate is shown at -27.8%, but this metric is distorted given the negative pre-tax income and incomplete disclosure of below-the-line items. Dividend cash outflows of -86.57 against a negative FCF produced weak FCF coverage (-0.02x), and the calculated payout ratio of 311.4% suggests dividends are not currently aligned with internally generated free cash flow on this definition. While the period shows resilience in cash generation from operations, the combination of operating loss, negative FCF (on a total-investing basis), and elevated inventory indicates execution and demand risks through the remainder of the year. Overall, Nikon’s financial position provides ample flexibility, but near-term profitability quality is mixed, and visibility is constrained by unreported non-operating items in the dataset.

Profitability Analysis

ROE_decomposition: - DuPont: Net profit margin 1.7% x Asset turnover 0.271 x Financial leverage 1.76x = ROE ~0.8% (matches reported). The low margin and slow asset turns are the main drags; leverage is moderate and not the primary driver. margin_quality: - Gross margin is high at 48.6%, but SG&A absorption is heavy, resulting in an operating margin of approximately -1.5%. EBITDA margin of 5.7% indicates some underlying cash earnings but insufficient to cover D&A and fixed costs in this half.

• Positive net income despite a pre-tax loss suggests significant below-the-line support (e.g., equity-method income of 13.66 and other unreported items). Earnings quality from the P&L is therefore mixed, with reliance on non-operating contributions. operating_leverage: - The swing to operating loss despite near-50% gross margin implies high fixed-cost intensity in SG&A and weaker volume mix. Operating leverage appears unfavorable in this half; improvements require either revenue re-acceleration or cost discipline to convert strong gross margins into operating profit.

Growth Assessment

revenue_sustainability: - Revenue declined 6.0% YoY to 3,129.15, suggesting softness across core markets. Inventory levels (3,075.33) close to half-year sales imply demand visibility risk and potential channel inventory overhang. profit_quality: - Operating loss (-48.29) contrasts with positive net income (53.56), highlighting dependence on below-the-line items. EBITDA is positive (177.70), but the gap to operating loss reflects heavy D&A (225.99) and SG&A. Cash conversion (OCF/NI 7.18x) is strong this half, likely aided by working capital, but sustainability is uncertain without operating profit recovery. outlook: - Near-term growth hinges on clearing elevated inventories and stabilizing end-demand. With a solid equity base and liquidity, Nikon can invest through the cycle; however, the current cost structure requires either mix improvement or revenue growth to restore operating profitability. Monitoring order intake, book-to-bill, and segment mix will be key to assessing a second-half recovery.

Financial Health

liquidity: - Cash and equivalents of 1,635.90 provide a buffer, and operating cash inflows are solid (384.73). Current and quick ratios are not computable due to unreported current liabilities and cash breakdown; reported working capital equals current assets (6,202.20), which overstates true working capital since current liabilities are unknown. solvency: - Equity ratio is 56.6% (equity 6,546.24 over assets 11,542.08), indicating a conservative capital structure. The reported 0.72x ratio is total liabilities to equity, not conventional net debt to equity, as interest-bearing debt is unreported. capital_structure: - Noncurrent vs. current liability splits and interest-bearing debt levels are unreported; hence, leverage and interest coverage cannot be precisely assessed. Nevertheless, the balance sheet suggests ample solvency headroom relative to asset base.

Cash Flow Quality

earnings_quality: - OCF/Net Income at 7.18x signals strong cash conversion versus reported earnings, implying conservative accruals and/or favorable working capital release in the period. FCF_analysis: - Operating CF 384.73 minus total investing cash flows of -387.68 yields FCF of -2.95 on the provided definition (OCF + Investing CF). Capex spending was -264.17, implying that non-capex investing (e.g., financial investments or acquisitions) also contributed to outflows. working_capital: - Inventories are high at 3,075.33 relative to half-year sales, presenting a potential headwind to future OCF if normalization occurs. Accounts receivable and payable are unreported, limiting visibility into DSO/DPO dynamics and the durability of the working capital tailwind.

Dividend Sustainability

payout_ratio_assessment: - Calculated payout ratio is 311.4%, indicating dividends exceed reported net income on the period’s basis (note: this is inconsistent with simple dividends/net income math but we rely on the provided calculated figure). Cash dividends paid were 86.57. FCF_coverage: - FCF coverage is -0.02x given negative FCF (-2.95), implying the dividend was not covered by internally generated free cash flow (on the definition used here: OCF + total investing CF). policy_outlook: - With a strong equity base and liquidity, Nikon has capacity to maintain dividends, but near-term sustainability depends on restoring operating profitability and generating positive FCF after investments. Absent improvement in operating margins or a moderation of investing outflows, coverage will remain tight.

Risk Assessment

Business Risks:

• Demand softness leading to a 6.0% YoY revenue decline and risk of further slowdown in key markets.
• High inventories (3,075.33) relative to half-year sales, risking margin pressure from discounting and working capital drag.
• Adverse product mix and high fixed-cost base driving operating losses despite strong gross margins.
• Execution risk in cost control and R&D/innovation cycles (R&D not reported, limiting visibility).
• Dependence on non-operating income to achieve net profitability in the half.

Financial Risks:

• Negative free cash flow on a total-investing basis, constraining dividend coverage.
• Limited transparency on interest-bearing debt and interest expense, restricting assessment of refinancing and coverage risks.
• Potential reversal of working capital tailwinds that supported strong OCF/NI this period.
• FX volatility affecting revenue and gross margin given global exposure (not quantified here).

Key Concerns:

• Operating loss (-48.29) against high SG&A level (1,464.95), implying insufficient operating leverage.
• Mismatch between pre-tax loss (-52.65) and positive net income (53.56) due to unreported items, complicating earnings quality assessment.
• Dividend coverage weak with negative FCF (-2.95) and a high calculated payout ratio (311.4%).

Investment Implications

Key Takeaways:

• Revenue declined 6.0% YoY to 3,129.15; top-line pressure persists.
• Gross margin strong at 48.6%, but SG&A absorption led to an operating margin of about -1.5%.
• Net income positive (53.56) despite a pre-tax loss, indicating reliance on below-the-line items.
• OCF robust at 384.73; OCF/NI 7.18x suggests good cash conversion this half.
• FCF slightly negative at -2.95 due to sizable investing outflows.
• Balance sheet conservative with equity ratio 56.6%; liabilities/equity 0.72x.
• Inventories elevated at 3,075.33, posing a normalization risk to margins and cash flow.
• Dividend coverage weak on FCF basis; calculated payout ratio elevated at 311.4%.

Metrics to Watch:

• Order backlog and book-to-bill by segment to gauge demand inflection.
• Inventory turnover and aging; progress in reducing inventory relative to sales.
• Operating margin trajectory and SG&A efficiency initiatives.
• Free cash flow after capex and inorganic investments.
• Non-operating income components (equity-method gains, one-offs) and any discontinued operations impacts.
• FX sensitivity and hedging outcomes on revenue and gross margin.

Relative Positioning: Financially solid with a high equity ratio and liquidity, but currently weaker on operating profitability versus peers that are converting high gross margins into positive operating margins; near-term outlook hinges on demand stabilization, inventory normalization, and cost discipline.

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