UNICHARM CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 (first half) of the fiscal year ending March 2026, revenue and operating income increased, resulting in higher revenue and profit. However, net income attributable to owners of the parent declined slightly due to an increase in profit attributable to non-controlling interests. Revenue was ¥4,871.3B (+4.9% YoY), operating income was ¥650.3B (+14.1% YoY, +80.2B), and profit before tax was ¥666.1B (+6.6% YoY). Net income attributable to owners of the parent was ¥410.3B (-1.9% YoY), primarily because profit attributable to non-controlling interests increased to ¥78.0B (¥48.8B in the same period of the previous year, +59.6%). The gross profit margin improved to 40.7% (+1.8pt YoY), while pricing and product-mix effects lifted the operating margin to 13.3% (+1.1pt YoY).

Factors Affecting Financial Performance

【Revenue】Revenue was ¥4,871.3B, an increase of +4.9% YoY (+229.6B). By segment, PersonalCare generated ¥3,968.2B (81.5% of total company revenue, YoY+4.0%), while PetCare generated ¥828.7B (17.0%, YoY+9.6%), with PetCare maintaining a relatively higher growth rate.

【Profit and Loss】Operating income was ¥650.3B (+14.1% YoY, +80.2B), and the operating margin improved to 13.3% (from 12.3% in the previous year, +1.1pt). The improvement in the gross profit margin to 40.7% (+1.8pt YoY) exceeded the increase in the SG&A expense ratio to 27.3% (+0.7pt YoY), contributing to higher operating income. Profit before tax was ¥666.1B (YoY+6.6%), as financial income of ¥52.5B exceeded financial expenses of ¥31.4B, resulting in a positive contribution from non-operating income and expenses. Meanwhile, the effective tax rate increased to 26.7% (25.3% in the previous year). In addition, profit attributable to non-controlling interests increased to ¥78.0B (¥48.8B in the previous year, +59.6%), causing net income attributable to owners of the parent to remain at ¥410.3B (YoY-1.9%), below the growth rate of profit before tax. Thus, although revenue and operating income increased, profit declined on an attributable-to-owners-of-the-parent basis.

Segment Analysis

PersonalCare recorded revenue of ¥3,968.2B (81.5% of total company revenue, YoY+4.0%), operating income of ¥480.4B (YoY+10.8%), and a profit margin of 12.1% (+0.7pt from the estimated 11.4% in the previous year), indicating continued margin improvement in the core business. PetCare recorded revenue of ¥828.7B (17.0% of total company revenue, YoY+9.6%), operating income of ¥157.2B (YoY+21.6%), and a profit margin of 19.0% (+1.9pt from the estimated 17.1% in the previous year). The segment continued to outperform PersonalCare in both growth and profitability, making a significant contribution to company-wide profit growth and margin improvement. Combined operating income from the two segments was ¥637.6B, meaning that these two segments accounted for the majority of the company-wide operating income of ¥650.3B.

Key Financial Metrics

【Profitability】The operating margin was 13.3% (12.3% in the previous year), while the gross profit margin was 40.7% (39.0% in the previous year), confirming improvement driven by pricing and product-mix effects. The net profit margin based on net income attributable to owners of the parent declined slightly to 8.4% (9.0% in the previous year), due to the higher effective tax rate and increased profit attributable to non-controlling interests.【Cash Quality】Operating cash flow (OCF) of ¥615.6B was 1.50 times net income attributable to owners of the parent of ¥410.3B. Inventory increased by only ¥8.6B, indicating a favorable level of earnings conversion into cash.【Investment Efficiency】ROE was 5.4%, and the equity ratio was 65.9% (+0.9pt from 65.0% in the previous year).【Financial Soundness】Interest-bearing debt was limited to ¥133.2B, comprising short-term borrowings of ¥68.5B and long-term borrowings of ¥64.7B, while cash and deposits of ¥2,544.7B significantly exceeded this amount. Current assets of ¥6,210.1B compared with estimated current liabilities of ¥2,500.5B resulted in a current ratio of approximately 2.5 times, representing a robust level.

Cash Flow Analysis

Operating cash flow was ¥615.6B (+3.8% YoY), maintaining a stable level after incorporating changes in working capital into profit before tax and non-cash items. Investing cash flow was an outflow of ¥170.0B, up from an outflow of ¥12.2B in the previous year, primarily due to an outflow of ¥219.7B for the acquisition of subsidiaries. Capital expenditures themselves declined to ¥109.9B from ¥145.8B in the previous year. Financing cash flow was an outflow of ¥476.2B, with dividend payments (¥156.5B to the parent company’s shareholders and ¥112.0B to non-controlling interests) and share repurchases of ¥190.1B representing the primary outflows. Free cash flow was ¥445.7B (OCF ¥615.6B + investing ▲¥170.0B), indicating that the company continued to generate ample cash even after capital expenditures, dividend payments, and share repurchases. Cash and cash equivalents were ¥2,544.7B at period-end, remaining broadly unchanged from ¥2,530.9B at the beginning of the period, supported by a foreign currency translation adjustment of +¥44.3B.

Quality of Earnings

Comprehensive income was ¥615.4B (¥514.5B attributable to owners of the parent and ¥100.9B attributable to non-controlling interests), representing a ¥104.2B divergence from net income attributable to owners of the parent of ¥410.3B. The primary factor was the substantial turnaround in the foreign currency translation adjustment to +¥99.7B (▲¥325.7B in the previous year), reflecting an increase in other comprehensive income due to the impact of exchange rates on the yen-converted net assets of overseas subsidiaries. Of consolidated net income of ¥488.3B, profit attributable to non-controlling interests increased to ¥78.0B (¥48.8B in the previous year, +59.6%), the primary reason that growth in net income attributable to owners of the parent (▲1.9%) lagged growth in profit before tax (+6.6%). Operating cash flow of ¥615.6B was 1.50 times net income attributable to owners of the parent of ¥410.3B. Given that inventory increased by only ¥8.6B and income taxes paid were ¥182.0B, broadly normal relative to profit before tax, the divergence between accrual-based and cash-based accounting (accruals) appears limited. No significant one-off items corresponding to extraordinary gains or losses were identified in the disclosures. Net financial income of +¥21.1B, consisting of financial income of ¥52.5B less financial expenses of ¥31.4B, provided ongoing support to profit as non-operating income and expenses.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥10,150.0B (YoY+7.4%), forecast net income attributable to owners of the parent of ¥700.0B (YoY+7.3%), and forecast EPS of ¥40.68. The earnings forecast was revised during the quarter. First-half progress rates were 48.0% for revenue, 58.6% for net income attributable to owners of the parent, and 58.4% for EPS (actual result: ¥23.75). Compared with the 50% benchmark for simple progress, revenue was slightly below, while profit-related metrics were above, indicating that profit was ahead of revenue in the first half.

Shareholder Returns

The interim dividend was ¥11 per share (¥9 in the same period of the previous year, +22.2%), while the full-year dividend forecast is ¥22 (no revision to the dividend forecast during the quarter). The forecast payout ratio is calculated as 54.3% by dividing the estimated total dividend of approximately ¥38.01B—calculated using the average number of shares outstanding during the period (approximately 1,727.80 million shares) and the forecast dividend of ¥22—by forecast full-year net income attributable to owners of the parent of ¥700.0B. The company conducted share repurchases of ¥190.1B during the first half. Combined with dividend payments of ¥156.5B, total shareholder returns were ¥346.6B, resulting in a total return ratio of 77.8% against first-half free cash flow of ¥445.7B. Given the company’s conservative financial position, with cash on hand of ¥2,544.7B and an equity ratio of 65.9%, there appears to be continued capacity to fund shareholder returns.

Risk Factors

1. Raw Material and Foreign Exchange Sensitivity: Although the gross profit margin improved to 40.7% (+1.8pt YoY), the company’s earnings remain structurally exposed to fluctuations in raw material prices and foreign exchange rates, which require monitoring.

2. Concentration of the Business Portfolio: PersonalCare accounts for 81.5% of revenue and 73.9% of operating income (¥480.4B/¥650.3B), meaning that demand trends in this business have a significant impact on company-wide performance.

3. Increase in Profit Attributable to Non-Controlling Interests: Profit attributable to non-controlling interests increased to ¥78.0B (¥48.8B in the previous year, +59.6%) out of consolidated net income of ¥488.3B. The continuing impact on net income attributable to owners of the parent should be monitored.

Industry Benchmark (Reference, Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is above the industry median for both operating margin and net profit margin, placing the company in the upper-tier group.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, indicating that the pace of growth is relatively moderate compared with the company’s high profitability.

※Source: Compiled by the company

Key Takeaways from the Earnings Results

1. The operating margin improved to 13.3% (12.3% in the previous year), and the improvement in the gross profit margin (+1.8pt) reflected pricing and product-mix effects. However, due to the sharp increase in profit attributable to non-controlling interests (+59.6%), net income attributable to owners of the parent declined slightly to ¥410.3B (YoY-1.9%). The divergence between higher revenue and operating income and the final profit metric is a structural characteristic of the current earnings results.

2. First-half net income attributable to owners of the parent reached 58.6% of the full-year forecast, exceeding the 50% benchmark for simple progress. The revenue progress rate was somewhat lower at 48.0%, making the performance in the second half key to achieving the full-year forecast.

3. The PetCare segment demonstrated higher profitability and growth than PersonalCare, with an operating margin of 19.0% (estimated 17.1% in the previous year) and revenue growth of YoY+9.6%, compared with PersonalCare’s profit margin of 12.1%. Changes in the segment mix may be making a structural contribution to company-wide profitability.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type, explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥465–¥492 at cost of equity ±1%; ¥478–¥478 at ω±0.1.

Note:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This figure does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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