LEC,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥34.45B
• Operating Income: ¥2.51B
• Net Income: ¥1.50B
• EPS: ¥45.69

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 solid recovery quarter with strong operating leverage and cash generation, though capital efficiency remains subdued and leverage (vs EBITDA) is elevated. Revenue grew 5.4% YoY to 344.5, with operating income up 103.5% to 25.06 and net income up 32.0% to 14.88, demonstrating meaningful profit recovery. Gross margin printed at 30.7% (105.7/344.5), indicating resilient pricing/mix and/or easing input costs. Operating margin improved to 7.27% (25.06/344.5), up roughly 350 bps YoY from an estimated 3.77% last year, driven by SG&A discipline and better gross spread. Ordinary margin rose to 7.30% from roughly 4.80% (~250 bps expansion), reflecting higher operating profit with only minor net non-operating impact. Net margin rose to 4.32% from about 3.45% (~87 bps expansion), with a relatively high effective tax rate of 36.3% capping the bottom-line flow-through. Earnings quality was strong: OCF of 54.76 greatly exceeded net income (OCF/NI 3.68x), highlighting robust cash conversion. Cash and deposits of 333.41 underpin an exceptional current ratio of 511%, materially lowering near-term liquidity risk. That said, Debt/EBITDA of 10.37x signals a leverage-over-earnings mismatch that warrants attention despite largely long-term maturities (noncurrent liabilities 431.82). ROE of 3.9% and ROIC of 3.6% remain below cost-of-capital benchmarks, pointing to ongoing capital efficiency headwinds even in a better earnings quarter. Non-operating income (2.62) was modest, with dividend income (1.29) and interest income (0.58) largely offset by non-operating expenses (2.52), including interest expense (1.54). Shareholder returns included sizable buybacks (-48.12 in financing CF), which, alongside capex (-9.74), likely exceeded FCF and drew on cash on hand. The balance sheet shows minimal short-term refinancing risk, but sustained deleveraging would improve resilience if demand normalizes or input costs re-inflate. Forward-looking, the improved margins and cash conversion suggest continued earnings normalization if cost tailwinds and pricing discipline persist. However, the low ROIC, high debt-to-EBITDA, and elevated tax rate temper the medium-term return profile, making execution on mix, productivity, and asset turnover improvement key.

Profitability Analysis

ROE decomposition: 3.9% ROE = 4.3% net profit margin × 0.374 asset turnover × 2.44x financial leverage. The largest driver of the YoY improvement is the net profit margin, which expanded ~87 bps (to 4.32%) on the back of a ~350 bps operating margin expansion to 7.27%. Asset turnover of 0.374 reflects relatively heavy asset base versus half-year sales; it appears broadly stable versus typical levels, with no evidence of a major change this period. Financial leverage at 2.44x is roughly steady QoQ/YoY given modest equity growth and predominantly long-term borrowings; leverage was not the main swing factor. Business explanation: margin gains likely stem from easing raw material/freight costs, pricing carryover, and SG&A discipline (SG&A ratio 23.4%), while non-operating effects were small net. Sustainability: gross/operating spreads could sustain near term if cost tailwinds persist and pricing holds, but normalization in inputs or FX could reverse part of the gains; tax rate near 36% also caps net margin. Concerning trends: capital efficiency remains weak (ROIC 3.6% vs 7–8% target range), and Debt/EBITDA at 10.37x is high relative to EBITDA generation, limiting flexibility if margins retrace.

Growth Assessment

Top-line growth of 5.4% to 344.5 indicates steady demand for core categories. Operating income more than doubled (+103.5%), evidencing strong operating leverage from gross spread expansion and SG&A containment. Ordinary income grew 60.3% and net income 32.0%, with the step-down vs operating income growth explained by higher non-operating expenses (interest) and a 36.3% tax rate. Revenue sustainability appears reasonable given stable accounts receivable (108.39) and inventories (90.34) relative to sales, though inventory turns/DSO detail is not disclosed. Profit quality is supported by cash conversion (OCF 54.76 > NI 14.88), suggesting limited earnings accrual risk this period. Outlook hinges on input cost/FX trends and the company’s pricing power; if cost relief endures and mix improves, current margin levels could be defended. However, low ROIC (3.6%) indicates that incremental growth should focus on higher-return segments and disciplined capex to lift returns. Non-operating contributions remain small and not a key growth engine. Absent segment disclosure, we assume broad-based improvement rather than one-off gains.

Financial Health

Liquidity is very strong: current ratio 511% and quick ratio 430% with cash and deposits of 333.41 far exceeding current liabilities of 111.09. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.44x, within but near the conservative threshold, warranting monitoring. Maturity profile shows low near-term risk: noncurrent liabilities (431.82) dominate, with long-term loans at 396.50; short-term debt not disclosed but current liabilities are modest. Interest coverage is robust at 16.27x, indicating ample capacity to service interest from operating earnings. However, Debt/EBITDA at 10.37x is high relative to common benchmarks, implying slower deleveraging unless EBITDA rises. Balance sheet quality includes intangibles of 31.82 and goodwill of 18.60 (together ~5.5% of assets), not excessive but still subject to impairment risk. No off-balance-sheet obligations were disclosed in the provided data. Overall solvency is adequate, with leverage-to-earnings the principal watchpoint.

Cash Flow Quality

OCF/Net Income is 3.68x, signaling high earnings quality and strong cash conversion in the period. With capex at 9.74, a proxy FCF (OCF – capex) is approximately 45.0, indicating solid internal funding capacity. Financing CF was -3.80, including sizable share repurchases of -48.12, implying that buybacks exceeded proxy FCF and were likely funded by existing cash reserves. Working capital details are not broken out, but the magnitude of OCF suggests either healthy collection of receivables, controlled inventory, or beneficial payables timing; absent detail, we flag monitoring of potential reversal in subsequent quarters. There are no signs of OCF/NI red flags (threshold <0.8) this quarter. Sustainability appears reasonable if margins hold and capex remains disciplined; however, continuing buybacks at the current pace could pressure cash unless operating cash flow strengthens further.

Dividend Sustainability

Payout ratio is calculated at 51.3%, within a generally sustainable <60% range. DPS and total dividends were not disclosed, limiting precision on cash distributions. Proxy FCF of ~45.0 suggests adequate coverage of ordinary dividends under a mid-50% payout framework. However, when combined with share repurchases of 48.12, total shareholder returns likely exceeded FCF, drawing on cash on hand. Given strong liquidity (cash 333.41), near-term capacity for dividends is ample, but long-term sustainability should be anchored to FCF generation rather than cash balances. With ROE at 3.9% and ROIC at 3.6%, management may balance cash returns with investment to lift returns; no change in policy is inferable from the data provided.

Risk Assessment

Business Risks:

• Input cost and FX volatility affecting gross margins (imported materials and freight).
• Demand normalization risk following margin recovery; potential price elasticity impact.
• Product mix and channel shifts that could pressure SG&A efficiency and margins.
• Inventory management risk if sell-through slows (limited turnover data provided).

Financial Risks:

• High Debt/EBITDA at 10.37x despite strong liquidity, exposing earnings to deleveraging needs.
• Interest rate risk on 396.50 of long-term loans if refinancing occurs at higher rates.
• Buyback pace exceeding proxy FCF, potentially reducing balance sheet flexibility if sustained.
• Tax rate at 36.3% constraining net margin and cash available for reinvestment.

Key Concerns:

• Capital efficiency below benchmark: ROIC 3.6% and ROE 3.9%.
• Leverage vs earnings capacity elevated even with improving margins.
• Limited disclosure on investing cash flows and SG&A breakdown reduces visibility into drivers.
• Potential reversal of working capital tailwinds that boosted OCF this period.

Investment Implications

Key Takeaways:

• Strong operating recovery with operating margin up ~350 bps YoY to 7.27%.
• High-quality earnings as OCF/NI reached 3.68x; cash conversion robust.
• Liquidity is ample (current ratio 511%, cash 333.41), minimizing near-term refinancing risk.
• Capital efficiency remains weak (ROIC 3.6%, ROE 3.9%), requiring improved asset turns and mix.
• Leverage relative to EBITDA is high (Debt/EBITDA 10.37x), a strategic constraint despite long maturities.
• Share repurchases of 48.12 exceeded proxy FCF, funded by cash; sustainability depends on future OCF.

Metrics to Watch:

• Gross and operating margin trajectory vs input costs and FX.
• Debt/EBITDA and interest coverage trend as earnings normalize.
• Working capital metrics (DSO/DPO/DOH) to gauge cash sustainability.
• Capex discipline and ROIC improvement versus 7–8% benchmark.
• Effective tax rate movement and any structural tax optimization.
• Pace of shareholder returns (dividends/buybacks) relative to FCF.

Relative Positioning: Within Japanese consumer/household goods peers, the company currently exhibits stronger liquidity and improving margins but lags on capital efficiency and leverage-to-earnings metrics; sustained spread management and tighter capital allocation will be required to close the ROIC/ROE 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