ITOCHU Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.25T
• Operating Income: ¥354.14B
• Net Income: ¥518.83B
• EPS: ¥354.18

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

Itochu Corporation (8001) reported FY2026 Q2 consolidated results under IFRS showing resilient bottom-line growth despite softer top-line and operating trends. Revenue was 72,491.59 (100M JPY), down 0.6% YoY, reflecting a mild deceleration against a high base and potential commodity price normalization. Gross profit was 12,096.04 (100M JPY), with a gross margin of 16.7%, indicating ongoing strength in value-added segments and trading spreads. SG&A expenses were 8,477.96 (100M JPY), equating to 11.7% of revenue and 70.1% of gross profit, implying disciplined cost control but limited operating margin expansion. Operating income declined 3.4% YoY to 3,541.40 (100M JPY), yielding an operating margin of about 4.9%; this suggests modest operating deleverage as a 0.6% revenue decline translated into a larger drop in operating profit. Below the operating line, equity method investment income was substantial at 1,602.39 (100M JPY), and together with other non-operating elements lifted profit before tax to 6,619.59 (100M JPY). Net income rose 14.1% YoY to 5,002.80 (100M JPY), benefitting from stronger associates’ contributions and a 21.6% effective tax rate. DuPont analysis indicates ROE of 7.5%, composed of a 6.9% net margin, 0.465x asset turnover, and 2.35x financial leverage, highlighting that bottom-line gains are driven more by below-operating contributions and leverage rather than pure operating improvements. The balance sheet remains robust with total assets of 155,859.53 (100M JPY), equity of 66,277.29 (100M JPY), and an equity ratio of 38.9%. Debt-to-equity stands at 1.35x, within typical sogo shosha ranges, suggesting manageable solvency risk. Cash generation was strong: operating cash flow reached 6,092.45 (100M JPY), 1.22x net income, and free cash flow was a solid 5,283.21 (100M JPY). Investing cash flow was a modest outflow of 809.24 (100M JPY), indicating disciplined capital deployment. Financing cash flow was an outflow of 4,985.96 (100M JPY), consistent with shareholder returns and/or debt repayments; details of dividends and buybacks were not disclosed in XBRL. EPS (basic) was 354.18 JPY on average shares of 1,412.51 million, aligning with consolidated net income. Book value per share calculated is 4,715.17 JPY versus 4,311.92 JPY from XBRL, reflecting definitional and scope differences; nonetheless, equity growth remains evident via retained earnings of 60,171.81 (100M JPY). Dividend sustainability appears sound with a calculated payout ratio of 63.4% and FCF coverage of 1.67x, though actual DPS was not disclosed. Overall, Itochu’s earnings quality is supported by robust cash conversion and associates’ profitability, while the slight deterioration in operating profit warrants monitoring. Data gaps (e.g., current liabilities, interest expense, depreciation, DPS) limit certain diagnostics but do not change the overall conclusion of steady financial health and cash flow resilience.

Profitability Analysis

ROE of 7.5% is driven by a 6.9% net profit margin, 0.465x asset turnover, and 2.35x financial leverage. Operating margin is approximately 4.9% (3,541.40 / 72,491.59), below the net margin due to sizable contributions from equity method income and other below-operating items. Gross margin of 16.7% points to healthy trading spreads and value-added businesses; however, the conversion of gross profit to operating income (29.3%) suggests a relatively heavy cost base or mix effects in the quarter. SG&A was 8,477.96, equal to 11.7% of revenue and 70.1% of gross profit, indicating that incremental margin capture was constrained this period. Year-on-year, operating income fell 3.4% against a 0.6% revenue decline, implying negative operating leverage in the quarter; by rough sensitivity, a 0.6% sales decline resulting in a 3.4% operating profit decline implies elevated fixed/semifixed cost burden. Net income rose 14.1% YoY owing to strong equity-method income of 1,602.39 and a manageable tax rate (21.6%), mitigating operating softness. The DuPont profile shows margin as the main driver of ROE, with moderate asset turnover for a diversified trading house and reasonable leverage amplification. Absent reported depreciation and interest, EBITDA-based and interest-coverage diagnostics are not available; nonetheless, cash-based metrics corroborate earnings quality.

Growth Assessment

Revenue declined 0.6% YoY to 72,491.59, signaling a stable but slightly softer demand/price environment, likely impacted by commodity normalization and portfolio mix. Gross profit at 12,096.04 was resilient, suggesting stickiness in value-added segments, though the 4.9% operating margin shows limited operating scalability this quarter. Operating income fell 3.4% YoY, indicating modest negative operating leverage; cost efficiencies did not fully offset the revenue dip. Net income growth of 14.1% YoY reflects strong contributions from associates (equity method income 1,602.39) and favorable below-operating items; sustainability will depend on the stability of these investees’ earnings. Asset turnover at 0.465x is consistent with a capital-heavy, investment-rich model; growth is more dependent on mix optimization and equity-method performance than pure volume expansion. Outlook-wise, gross margin resilience and OCF strength provide a buffer for investment and shareholder returns, but operating profit trajectory will hinge on price spreads, cost control, and the cadence of equity-method earnings. With investing CF modest at -809.24, the company appears selective in capital deployment, which tempers near-term growth acceleration but supports capital efficiency. Overall growth quality is acceptable, skewed to non-operating contributions this quarter; a sustained recovery in operating margin would be a positive inflection.

Financial Health

Total assets are 155,859.53 and equity is 66,277.29 (100M JPY), yielding an equity ratio of 38.9% and financial leverage (A/E) of 2.35x. Total liabilities are 89,582.24 (100M JPY). Debt-to-equity is 1.35x (reported), consistent with the sector and manageable given strong cash generation. Cash and equivalents are 5,835.42 (100M JPY), supporting liquidity; however, current liabilities are not disclosed, so current and quick ratios cannot be computed. Working capital is presented as 59,581.47 (100M JPY), equal to current assets due to unreported current liabilities; true working capital is likely lower. Retained earnings are strong at 60,171.81, underpinning balance sheet resilience and capacity for distributions. Capital surplus is negative at -4,569.11, which in a Japanese IFRS context can reflect treasury stock and historical capital transactions rather than operating weakness. Interest-bearing debt breakdown and maturities are unreported, limiting tenor and interest-rate risk assessment. Overall solvency appears sound with ample equity cushion and cash.

Cash Flow Quality

Operating cash flow was 6,092.45 (100M JPY), at 1.22x net income, indicating strong cash conversion and limited reliance on accruals. Investing cash flow was a modest outflow of 809.24, suggesting disciplined capex/M&A in the period. Free cash flow was 5,283.21, comfortably positive and consistent with the earnings trend. Financing cash flow was an outflow of 4,985.96, likely reflecting dividends, share repurchases, and/or net debt reduction; specific breakdowns were not disclosed. The quality of earnings appears solid given OCF exceeding net income and limited investing drag. Working capital details (receivables, payables) are unreported; nonetheless, the OCF/NI ratio indicates no evident build-up in working capital that would distort earnings. Absence of D&A data precludes EBITDA reconciliation, but the cash metrics support the durability of reported profits.

Dividend Sustainability

The calculated payout ratio is 63.4%, which is elevated but within a sustainable range given the company’s cash generation. Free cash flow coverage of dividends is 1.67x, indicating that distributions are covered by internally generated cash. DPS and total dividends paid were not disclosed, so the analysis relies on payout and coverage metrics derived from available earnings and cash flow data. Financing cash outflows of 4,985.96 (100M JPY) are consistent with active shareholder returns. Balance sheet strength (equity ratio 38.9%) and retained earnings of 60,171.81 provide additional buffers. Policy outlook appears supportive of continued stable returns, contingent on maintaining OCF>NI and steady equity-method contributions.

Risk Assessment

Business Risks:

• Commodity price volatility impacting trading margins and inventory valuations
• Foreign exchange fluctuations (notably USD/JPY) affecting translation and transaction gains/losses
• Dependence on equity-method investees; volatility in associates’ earnings can swing consolidated net income
• Geopolitical and supply chain disruptions affecting global trading flows
• Counterparty and credit risks in trading and finance transactions
• Sectoral mix shifts that could pressure gross and operating margins
• Regulatory and sanctions risk in cross-border transactions

Financial Risks:

• Limited visibility on interest-bearing debt structure and maturities due to unreported details
• Potential operating deleverage if revenue softens further, given a 4.9% operating margin
• Working capital swings inherent to trading models could impact OCF quarter-to-quarter
• Exposure to fair value changes and impairment risks in investment securities and associates (details not disclosed)
• Liquidity ratio assessment constrained by unreported current liabilities

Key Concerns:

• Operating income declined 3.4% YoY despite stable revenue (-0.6%), indicating negative operating leverage
• Net income reliance on equity-method income (1,602.39) and below-operating items to achieve +14.1% YoY
• Absence of depreciation, interest expense, and current liability disclosures limits deeper margin and coverage diagnostics
• Negative capital surplus (-4,569.11) underscores reliance on retained earnings for equity growth, though not uncommon

Investment Implications

Key Takeaways:

• Bottom line robust (+14.1% YoY) despite modest revenue decline and lower operating income
• Operating margin at ~4.9% suggests limited operating leverage this quarter
• Strong OCF (6,092.45) and FCF (5,283.21) underscore high earnings quality
• ROE at 7.5% reflects healthy margin and leverage effects but depends on below-operating contributions
• Balance sheet is solid with 38.9% equity ratio and D/E 1.35x
• Dividend capacity appears supported by 1.67x FCF coverage

Metrics to Watch:

• Trend in operating income and operating margin recovery
• Equity-method investment income volatility and sustainability
• Working capital movements and OCF/NI ratio maintenance above 1.0x
• Commodity price and FX sensitivity to revenue and gross profit
• Capital allocation (capex/M&A) and financing cash outflow breakdown (dividends/buybacks)
• Leverage metrics and any changes in interest-bearing debt composition

Relative Positioning: Within the sogo shosha peer set, Itochu continues to demonstrate resilient cash generation and strong associates’ contributions, supporting returns and balance sheet quality; however, near-term operating leverage appears softer, making sustained operating margin improvement a focal point for relative momentum.

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