OLYMPUS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥454.35B
• Operating Income: ¥46.13B
• Net Income: ¥29.19B
• EPS: ¥26.00

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: FY2026 Q2 was weaker than expected for Olympus, with a clear step-down in profitability and cash conversion despite resilient gross margins. Revenue fell to 4,543.5 (−4.2% YoY), while operating income dropped more sharply to 461.3 (−34.6% YoY), underscoring operating deleverage. Net income declined to 291.9 (−40.4% YoY), reflecting both margin compression and a non-operating drag. Operating margin contracted to 10.2% from roughly 14.9% a year ago, a compression of about 470 bps. Net profit margin fell to 6.4% from about 10.3% last year, a decline of roughly 370 bps. Gross profit remained healthy at 2,964.3, implying a robust gross margin of 65.2%, but elevated SG&A of 2,420.9 weighed heavily on operating profit. EBITDA was 790.8, translating to an EBITDA margin of 17.4%, still notably below last year given the operating margin step-down. Equity-method profit was a loss of −37.8, adding to non-operating headwinds. Cash generation lagged earnings: operating CF was 210.7 versus net income of 291.9, with OCF/NI at 0.72x, triggering an earnings quality caution. Free cash flow was negative at −292.97 as investing outflows (−503.7) exceeded OCF, while shareholder returns remained large (dividends of −225.6 and buybacks of −370.4). Balance sheet resilience remains a support with equity ratio at 53% and D/E at 0.89x, though ROE sits at a subdued 4.0% and ROIC at 4.1% (below the 5% warning threshold). The effective tax rate was 34.8%, broadly in line with typical medtech profiles. Goodwill and intangibles total 2,798.6, introducing impairment sensitivity if growth or margins disappoint. The quarter’s key issues were operating deleverage, equity-method losses, and subpar cash conversion. Near-term priorities likely include stricter SG&A discipline, working capital normalization, and a re-think of buyback pace given negative FCF. Looking forward, sustaining high gross margins while restoring operating efficiency and improving cash conversion will be critical to lift ROIC and ROE back toward mid-to-high single digits.

Profitability Analysis

ROE (4.0%) decomposes into Net Profit Margin (6.4%) × Asset Turnover (0.328) × Financial Leverage (1.89x). The largest deterioration appears in margin, with operating margin contracting by ~470 bps YoY and net margin by ~370 bps, far outpacing the modest −4.2% revenue decline. Business drivers include elevated SG&A relative to revenue and a negative equity-method contribution (−37.8), which diluted bottom-line profitability. Asset turnover at 0.328 is low, consistent with a capital-intensive medtech footprint and inventory build; no evidence suggests a sharp improvement this period. Financial leverage at 1.89x is moderate and relatively stable, so leverage contributed little to offset margin pressure. The margin compression seems partly cyclical/operational (deleverage on lower sales, higher SG&A), while the equity-method loss may be partly one-off but remains a risk until visibility improves. Notably, SG&A (2,420.9) grew faster than revenue (which fell), indicating negative operating leverage and a cost base that did not flex with topline conditions. Sustainability: gross margin resilience is a positive structural feature, but restoring operating margin will require cost control and mix/price discipline; absent these, margin recovery could be gradual rather than immediate.

Growth Assessment

Topline declined 4.2% YoY to 4,543.5, suggesting softer demand or adverse FX/mix effects within the medtech portfolio. Operating income dropped 34.6% to 461.3, indicating operating deleverage; net income fell 40.4% to 291.9, compounded by equity-method losses. Gross margin remained strong (65.2%), implying product-level pricing/mix remains solid, but SG&A intensity prevented flow-through. EBITDA margin at 17.4% is weaker YoY, consistent with the operating margin contraction. Revenue sustainability hinges on procedural volumes, product refresh cycles in endoscopy/therapeutics, and FX; the current print does not signal structural demand erosion but highlights sensitivity to modest topline declines. Profit quality is mixed: non-operating losses and an effective tax rate of 34.8% further squeezed net. Outlook: management likely needs to tighten SG&A, improve inventory turns, and stabilize equity-method affiliates. If topline stabilizes and cost actions take hold, margins can recover off this trough; otherwise, ROIC may remain below the 7–8% medtech target range in the near term.

Financial Health

Liquidity: Current ratio is not calculable due to unreported current liabilities; we therefore avoid conclusions on near-term liquidity buffers. Balance sheet quality remains solid with equity ratio at 53% and D/E at 0.89x (below the 1.5x conservative benchmark). Working capital is shown as 6,050.7 (reported), though current liabilities are unreported; we cannot assess maturity mismatches. Solvency: Total liabilities are 6,512.1 versus total equity of 7,335.8, indicating conservative leverage. Intangibles and goodwill total 2,798.6 (20% of assets), elevating impairment sensitivity if growth disappoints. Interest coverage cannot be assessed given missing interest expense, but EBITDA of 790.8 provides a reasonable buffer against typical medtech interest burdens. No explicit off-balance sheet obligations were reported; absence of disclosure limits further assessment.

Cash Flow Quality

Earnings quality is flagged: OCF/Net Income is 0.72x (<0.8), indicating weaker cash conversion due to working capital or accruals. Operating CF of 210.7 did not cover capex (−331.8), yielding FCF of −292.97. Dividends (−225.6) and buybacks (−370.4) were not covered by FCF, implying reliance on cash balances or incremental debt for shareholder returns this period. Investing CF outflows (−503.7) likely include capex and possibly M&A/intangibles, pressuring FCF. Working capital: inventories at 2,086.1 and receivables at 1,909.9 appear sizable relative to revenue, suggesting scope to improve turns and reduce cash tied up; however, without prior-period comps we cannot quantify the delta. No clear signs of aggressive working-capital management are evident from the limited data, but the OCF shortfall warrants monitoring.

Dividend Sustainability

The calculated payout ratio is 78.1%, above the <60% benchmark for comfort and elevated given declining earnings. FCF coverage is −1.29x (negative FCF vs dividends), indicating dividends were not funded organically this period. With buybacks of −370.4 on top of dividends −225.6, total shareholder returns exceeded internal cash generation, pressuring cash reserves despite a cash and equivalents balance of 1,472.4. Unless OCF recovers and capex normalizes, sustaining both current dividend levels and repurchases could strain the balance sheet. Policy outlook: a calibrated approach favoring dividends over buybacks may emerge if cash conversion does not improve; however, the strong equity base provides near-term flexibility.

Risk Assessment

Business Risks:

• Operating deleverage risk if revenue softness persists, as seen in the ~470 bps operating margin contraction.
• Pricing and reimbursement pressures in endoscopy/therapeutics that could erode margins despite solid gross margin.
• Product and regulatory risk (quality issues, recalls, or approval delays) inherent to medtech.
• FX volatility (USD/EUR vs JPY) impacting reported revenue and margins.
• Equity-method loss (−37.8) indicating affiliate performance volatility.

Financial Risks:

• Cash conversion shortfall (OCF/NI 0.72x) and negative FCF (−292.97) amid continued shareholder returns.
• Intangible asset and goodwill concentration (2,798.6) leading to potential impairment in a downturn.
• Unknown current liabilities (current ratio not calculable) creating uncertainty around near-term liquidity buffers.
• ROIC at 4.1% below 5% warning, implying value-creation pressure relative to cost of capital.

Key Concerns:

• Sustained SG&A intensity (2,420.9) limiting operating leverage and profit flow-through.
• Inventory and receivable levels tying up cash and depressing OCF.
• Non-operating headwinds (negative equity-method income) weighing on net margin.

Investment Implications

Key Takeaways:

• Profitability reset: operating margin down ~470 bps YoY to 10.2%; net margin down ~370 bps to 6.4%.
• Cash conversion below par (OCF/NI 0.72x) with negative FCF and outsized shareholder returns.
• Balance sheet remains solid (equity ratio 53%, D/E 0.89x) but ROE 4.0% and ROIC 4.1% are suboptimal.
• Gross margin resilience (65.2%) is a key positive lever if SG&A can be flexed.
• Equity-method losses added to non-operating drag; stabilization here would aid EPS recovery.

Metrics to Watch:

• Operating margin trajectory and SG&A as a % of sales.
• OCF/Net income and inventory/receivable turns.
• FCF vs total shareholder returns (dividends + buybacks).
• ROIC progression toward 7–8% target range.
• Equity-method income trend and any impairment indicators for goodwill/intangibles.

Relative Positioning: Within global medtech peers, Olympus retains strong gross margins and a solid balance sheet but currently underperforms on operating leverage, cash conversion, and ROIC. Near-term execution on cost control and working-capital efficiency is needed 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