UNICHARM CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥694.23B
• Operating Income: ¥120.00B
• Net Income: ¥68.96B
• EPS: ¥34.68

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: Mixed quarter with top-line contraction and operating margin compression, but resilient bottom line and strong cash generation. Revenue declined 3.9% YoY to 6,942.25, while operating income fell 13.3% YoY to 1,200.00. Gross profit reached 2,846.42 with a gross margin of 41.0%. Operating margin was 17.3% this period versus an inferred ~19.2% last year, indicating roughly 188 bps of compression. Net income increased 2.0% YoY to 607.16, lifting net margin to 8.8% from an inferred ~8.2% (+50 bps), despite weaker operating profit. Profit before tax (934.88) was below operating income, implying net negative below-the-line items this period, though details are unreported. Earnings quality was solid: operating cash flow was 1,071.43, 1.76x net income, and reported free cash flow was 355.75. EBITDA was 1,545.26 with a margin of 22.3%, indicating healthy underlying profitability despite deleverage in SG&A. Balance sheet strength remains a key positive: equity ratio is 65.1%, debt/EBITDA ~0.09x, and total interest-bearing debt is modest (short-term 76.71, long-term 68.05). ROE is 7.0% and ROIC is 9.1%, the latter above common consumer-staples benchmarks. The combination of lower revenue and lower operating income suggests pricing/mix and/or volume softness, and cost pressures or SG&A deleverage. Net income resilience likely benefited from tax/other factors (effective tax rate 33.4%) and potentially minority interests, though specifics are not disclosed. Dividend optics are a concern: the calculated payout ratio is 135% and FCF coverage is 0.43x, implying dividends exceeded free cash flow on a trailing basis. Shareholder returns also included share repurchases of 190.00, further tightening FCF coverage. Forward-looking, maintaining pricing power, cost discipline, and stabilizing volumes in core categories (baby care, feminine care, pet care) will be critical. With robust liquidity and low leverage, the company has ample flexibility to navigate input cost and FX volatility, but sustaining dividends at current levels may require an earnings and FCF reacceleration.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.0% = Net Profit Margin 8.8% × Asset Turnover 0.589 × Financial Leverage 1.37x. The most notable movement versus last year appears to be a decline in asset turnover (revenue -3.9% YoY on a larger asset base) and a mild improvement in net margin (+~50 bps YoY) despite operating margin compression, implying below-the-line/tax effects aided NI. The business drivers: revenue softness likely reflects volume/mix pressures and/or regional weakness, while SG&A deleverage (SG&A 1,810.53 against lower revenue) and possibly less favorable input cost tailwinds compressed operating margin (~188 bps). The net margin uplift despite weaker operating profit suggests one-time or non-operating/tax benefits; however, PBT < OI indicates some negative non-operating items in this period, so the YoY NI increase may reflect a comparison effect rather than structural improvement. Sustainability: margin pressures from SG&A and costs may persist near term unless pricing/mix or cost-efficiency programs offset; the NI uplift looks less durable than recurring operating improvements would be. Concerning trends: operating income fell faster than revenue (negative operating leverage), and SG&A likely outpaced revenue growth on a YoY basis (deleveraging risk).

Growth Assessment

Top-line contracted 3.9% YoY, indicating demand softness and/or pricing/mix normalization in core categories. Operating income declined 13.3% YoY, signaling negative operating leverage and cost pressure. Net income rose 2.0% YoY despite weaker operations, implying supportive below-the-line/tax factors; sustainability of this divergence is uncertain. Gross margin of 41.0% remains strong for the category, but the operating margin drop to 17.3% highlights SG&A intensity. EBITDA margin of 22.3% suggests underlying profitability remains robust if operating costs can be contained. Region/product mix shifts and FX likely impacted results, though specifics are unreported. With ROIC at 9.1%, the investment base still generates attractive returns, but sustaining this requires stabilizing revenue and rebuilding operating margin. Near-term outlook hinges on pricing discipline, input cost trajectories (pulp, SAP, petrochemicals), and market recovery in key geographies. Management’s capital return posture (buybacks 190.00 and high implied dividends) indicates confidence, but future distributions may moderate without FCF improvement. Overall, revenue sustainability looks pressured in the near term; margin repair and cost control are key to profit quality improvement.

Financial Health

Liquidity: Current ratio cannot be calculated due to unreported current liabilities; however, current assets are sizable at 5,934.99 and cash & equivalents stand at 2,247.30, suggesting ample near-term liquidity. Solvency: Equity ratio is strong at 65.1%, and debt-to-equity is 0.37x with total loans of 144.76, implying conservative leverage. Interest coverage is not calculable (interest expense unreported), but Debt/EBITDA of ~0.09x indicates very high coverage in practice. Maturity mismatch: Short-term loans (76.71) are small versus current assets (5,934.99), suggesting low refinancing risk; full current liability detail is unreported, so a complete assessment is limited. Off-balance sheet obligations: None disclosed in the provided data. No warnings triggered for Current Ratio < 1.0 or D/E > 2.0.

Cash Flow Quality

OCF/Net Income is 1.76x, indicating high-quality earnings with strong cash conversion. Reported free cash flow is 355.75, positive but below implied dividend outflow (payout ratio 135%), resulting in an FCF coverage of 0.43x. OCF/EBITDA is approximately 69%, reasonable for the sector given working capital needs; detailed working capital components are unreported, but strong OCF versus NI suggests no evident earnings quality concerns. Capex was 301.52, consistent with ongoing capacity and innovation investment; current OCF comfortably covered capex. Working capital signals: inventories are 1,231.41 amid lower revenue, but without receivables/payables detail, signs of manipulation cannot be assessed; overall cash generation argues against aggressive working capital tactics. Overall, cash flow quality is solid, but funding of dividends and buybacks exceeded FCF.

Dividend Sustainability

The calculated payout ratio is 135%, implying dividends of roughly ~820 on net income of 607.16; dividends paid are unreported but FCF coverage is 0.43x, suggesting distributions exceeded free cash generation. With share repurchases of 190.00 also executed, total shareholder returns likely surpassed FCF, drawing on cash balances or incremental financing. Given strong balance sheet and cash on hand (2,247.30), near-term dividends are serviceable, but sustainability at this payout level depends on FCF improvement via revenue stabilization and margin recovery. Absent an upturn in OCF or capex moderation, maintaining a >100% payout would be a medium-term risk to policy consistency.

Risk Assessment

Business Risks:

• Input cost volatility (pulp, SAP, petrochemicals) pressuring margins
• Volume/mix softness in core categories (baby care, feminine care, pet care)
• FX fluctuations impacting overseas earnings translation and input costs
• Competitive pricing intensity in Asia and emerging markets
• Potential demand weakness in China/SEA consumer channels

Financial Risks:

• Dividend payout exceeding FCF (payout ratio 135%, FCF coverage 0.43x)
• Operating deleverage if SG&A growth outpaces revenue recovery
• Working capital swings (inventories 1,231.41) affecting OCF
• Non-operating income/expenses volatility (PBT below OI this period)

Key Concerns:

• Operating margin compression (~188 bps YoY) despite strong gross margin
• Revenue decline (-3.9% YoY) with uncertain near-term catalysts
• Dependence on below-the-line/tax effects to hold net income growth
• Data gaps on interest expense and current liabilities limit full risk assessment

Investment Implications

Key Takeaways:

• Top line -3.9% YoY and operating income -13.3% indicate negative operating leverage
• Gross margin resilient at 41.0%, but operating margin compressed to 17.3% (~-188 bps YoY)
• Net income +2.0% YoY lifted net margin to 8.8%, aided by below-the-line/tax factors
• OCF robust at 1,071.43 (1.76x NI); reported FCF 355.75 positive but thin versus distributions
• Balance sheet conservative: equity ratio 65.1%, Debt/EBITDA ~0.09x
• ROIC 9.1% exceeds typical targets; ROE 7.0% aligned with NPM × AT × leverage

Metrics to Watch:

• Price/mix vs volume trends by region and category
• SG&A trajectory relative to revenue (operating leverage)
• Input cost indices (pulp, SAP, oil-derived materials) and FX (JPY)
• OCF sustainability and FCF coverage of dividends
• Operating margin recovery toward 19%+
• Working capital turns (inventory days, where disclosed)

Relative Positioning: Within Japan consumer staples, the company maintains a stronger-than-peers balance sheet and solid ROIC, but currently lags top peers on revenue momentum and operating margin trajectory; cash generation is healthy, yet shareholder returns outpacing FCF raise medium-term policy sustainability questions.

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