ZERO CO.,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥35.45B
• Operating Income: ¥2.51B
• Net Income: ¥1.75B
• EPS: ¥103.10

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 mixed FY2026 Q1 with modest top-line growth but margin compression and weaker cash conversion, warranting a cautious stance on earnings quality. Revenue rose 3.3% YoY to 354.5, indicating steady demand in core logistics/auto-related services. Gross profit reached 52.1, with a gross margin of 14.7%, but operating income declined 7.9% YoY to 25.1. Operating margin contracted to 7.1% this quarter from roughly 7.9% a year ago, a compression of about 86 bps, reflecting cost pressures and/or pricing mix. Net income fell 7.4% YoY to 17.5, implying a net margin of 4.9% versus about 5.5% a year ago, compressing by roughly 57 bps. The effective tax rate was 32.6%, broadly normal and not the driver of the net margin decline. EBITDA was 37.7 and the EBITDA margin 10.6%, signposting healthy depreciation discipline but not enough to offset operating cost headwinds. Cash flow generation lagged earnings: OCF was 12.8 versus NI of 17.5 (OCF/NI 0.73x), triggering an earnings quality caution. Free cash flow was positive but slim at 3.0, insufficient to cover dividends paid of 7.7 in the quarter, resulting in FCF coverage of 0.12x. Balance sheet strength remains a support: equity ratio stands at 60.5% and D/E at 0.63x, providing flexibility despite low ROIC of 3.9% (below the 5% warning threshold). Profit composition was predominantly operating; equity-method income was immaterial (-0.01), so results reflect the core business rather than affiliate swings. The decline in operating profit despite revenue growth points to cost inflation (labor, fuel, subcontracting) and possibly slower pass-through in pricing. Working capital appears to have absorbed cash (receivables at 171.8), consistent with the weak OCF vs NI. Looking ahead, management will likely need to improve price-cost pass-through and working capital discipline to protect margins and lift ROIC above cost of capital. Dividend sustainability bears monitoring given the reported payout ratio of 140.6% and low FCF coverage this quarter, acknowledging potential timing/seasonality effects.

Profitability Analysis

ROE (4.0%) decomposition: Net Profit Margin (4.9%) × Asset Turnover (0.496) × Financial Leverage (1.63x). The component that changed most appears to be Net Profit Margin, given revenue grew 3.3% while operating income fell 7.9%, indicating operating margin pressure; asset turnover and leverage likely moved less this quarter. Operating margin compressed about 86 bps YoY (to ~7.1%), and net margin declined ~57 bps (to ~4.9%), pointing to cost inflation (e.g., labor, fuel, subcontracting) or mix changes outpacing pricing. This pressure is partially structural (tight labor market, driver shortages, safety/compliance costs) but could be mitigated via price revisions and efficiency initiatives; sustainability depends on the pace of pass-through and productivity gains. Financial leverage at 1.63x is modest and stable, so leverage was not a driver of ROE change. Watch for SG&A intensity: SG&A ratio is 7.4% of revenue; although absolute SG&A is flat QoQ data not provided, the disproportional decline in operating income vs revenue suggests operating deleverage. Risk flags: operating profit decline with revenue growth, and ROIC at 3.9% (<5%) indicate capital efficiency concerns.

Growth Assessment

Top-line growth of 3.3% YoY to 354.5 suggests resilient demand in the company’s logistics/auto distribution niches. However, profit growth is not keeping pace: operating income fell 7.9% and net income fell 7.4%, evidencing negative operating leverage. The revenue increase appears organic given no disclosed large one-time gains and negligible equity-method contribution. Margin compression implies pricing lag versus cost inflation or adverse business mix (e.g., lower-margin contracts). Without segment disclosure, sustainability of growth hinges on the company’s ability to reprice contracts and optimize routing, utilization, and labor productivity. Near-term outlook: modest revenue growth is plausible, but earnings trajectory will depend on restoring operating margin toward the prior-year level (~8%). Key swing factors include fuel cost trends, wage pressures, and customer price pass-through cadence. Given low ROIC, incremental growth must be capital-disciplined to enhance returns. Overall, growth quality is fair on revenue but weak on profit conversion this quarter.

Financial Health

Liquidity: Current ratio cannot be calculated due to unreported current liabilities; however, current assets are 345.7 and accounts receivable 171.8 exceed accounts payable of 86.5, suggesting a net receivable position. Solvency: Equity ratio is strong at 60.5%, and D/E at 0.63x indicates conservative leverage; no explicit interest-bearing debt detail was disclosed. No immediate warnings: Current Ratio flag cannot be assessed; D/E is below the 2.0 threshold. Maturity mismatch risk: Without short-term debt disclosure, risk is indeterminate, but the sizeable receivables vs payables implies reliance on collections; any delay could pressure liquidity. Off-balance sheet: No disclosures provided on leases or guarantees; potential lease liabilities (common in logistics) not captured here could elevate leverage metrics.

Cash Flow Quality

OCF was 12.8 against net income of 17.5, yielding OCF/NI of 0.73x, below the 0.8 threshold—an earnings quality concern. Free cash flow was 3.0 (approximated via OCF + Investing CF), positive but thin. Dividends paid (7.7) exceeded FCF materially (FCF coverage 0.12x), implying reliance on cash on hand or financing in the quarter. Working capital likely absorbed cash—consistent with rising receivables relative to payables and seasonal billing patterns in logistics—though prior-period balances are not provided to quantify changes. No obvious signs of aggressive working capital management are visible from the limited data, but the shortfall of OCF vs NI should be monitored for persistence.

Dividend Sustainability

Reported payout ratio is 140.6%, which is above the <60% benchmark and would be unsustainably high if reflective of normalized run-rate; however, quarter-based payout ratios can be distorted by timing/seasonality. On a cash basis, dividends paid of 7.7 were not covered by FCF of 3.0 (0.12x coverage), indicating near-term funding from cash balances or financing. With a strong equity base (equity ratio 60.5%), the balance sheet provides flexibility, but sustaining dividends requires improved cash conversion and/or capex moderation. Policy outlook: absent explicit guidance, the company likely targets stable or progressive dividends; sustainability hinges on restoring operating margin and lifting ROIC above 5–7%. Watch for full-year payout guidance and cash conversion in subsequent quarters.

Risk Assessment

Business Risks:

• Cost inflation (labor, fuel, subcontracting) outpacing price pass-through, compressing margins
• Utilization and volume variability in auto/logistics end markets affecting operating leverage
• Customer mix and contract repricing cycles limiting near-term margin recovery
• Operational constraints from driver shortages and regulatory compliance costs

Financial Risks:

• Earnings quality: OCF/NI at 0.73x below threshold
• Low ROIC at 3.9% (<5%) indicating capital efficiency challenges
• Dividend not covered by FCF this quarter (0.12x coverage)
• Potential unreported lease liabilities elevating effective leverage

Key Concerns:

• Operating margin compressed by ~86 bps YoY despite revenue growth
• Receivables-heavy working capital profile could pressure liquidity if collections slow
• Limited disclosure on debt maturities and interest expense obscures interest coverage assessment
• Limited visibility on segment profitability and pricing actions

Investment Implications

Key Takeaways:

• Top-line grew 3.3% YoY, but operating income fell 7.9%—negative operating leverage
• Operating margin down to ~7.1% from ~7.9% (−86 bps); net margin to 4.9% (−57 bps)
• OCF/NI of 0.73x signals weaker cash conversion; FCF insufficient for dividends this quarter
• Balance sheet remains conservative (equity ratio 60.5%, D/E 0.63x)
• ROIC of 3.9% below threshold; improvement needed for value creation

Metrics to Watch:

• Operating margin and SG&A ratio trajectory
• OCF/NI and receivables days (DSO)
• Fuel and labor cost pass-through rates in new/renewed contracts
• ROIC progression toward >5–7%
• Dividend coverage by FCF over the full year

Relative Positioning: Within Japanese logistics/auto-transport peers, the company exhibits decent operating margins but subpar ROIC and weaker cash conversion this quarter; balance sheet strength is a positive differentiator, yet earnings quality and dividend coverage lag best-in-class operators.

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
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