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

Zero Co., Ltd. (IFRS, consolidated) delivered stable topline growth in FY2026 Q1 with revenue of 354.53 (100M JPY), up 3.3% YoY, but margins compressed, leading to a 7.9% YoY decline in operating income to 25.10 and a 7.4% decline in net income to 17.47. Gross profit was 52.14, implying a gross margin of 14.7%, while SG&A was 26.37, resulting in an operating margin of roughly 7.1%. EBITDA came in at 37.65, translating to a 10.6% EBITDA margin, indicating a moderate buffer over operating profit but some cost inflation relative to revenue growth. DuPont decomposition points to a calculated ROE of 4.0%, driven by a net margin of 4.9%, asset turnover of 0.496x, and financial leverage of 1.63x. The effective tax rate was 32.6%, broadly aligned with domestic statutory ranges, and EPS (basic and diluted) was 103.10 JPY. Operating cash flow was 12.80, below net income, yielding an OCF/NI ratio of 0.73x, suggestive of working capital outflows or timing effects in the quarter. Free cash flow was positive at 2.97 after investing CF of -9.83, with capex not separately disclosed but likely the main driver of investing outflows. Financing CF was a net inflow of 2.39 despite dividends paid of -7.72, implying incremental borrowing or other financing sources offsetting shareholder returns. The balance sheet remains conservatively capitalized, with total assets of 715.41 and equity of 439.70 (equity ratio 60.5%), and liabilities/equity at 0.69x. Current assets stood at 382.49 (including receivables 174.31 and inventories 31.37), while current liabilities were not disclosed, limiting liquidity ratio analysis. Reported payout metrics indicate a calculated payout ratio of 140.6% and FCF coverage of 0.12x; given quarterly timing and disclosure gaps, these should be treated with caution. Overall, the quarter shows resilient revenue but some pressure on operating efficiency and cash conversion, likely from seasonality and receivables build. Earnings quality is supported by depreciation of 12.55, but the shortfall of OCF versus NI merits monitoring. With ample cash and equivalents of 166.43 and a strong equity base, solvency is solid, though interest-bearing debt levels were not disclosed. Key watchpoints are margin recovery, working capital normalization, and the true run‑rate of shareholder returns relative to FCF.

Profitability Analysis

ROE is 4.0% per DuPont, comprising a net profit margin of 4.9%, asset turnover of 0.496x, and financial leverage of 1.63x. The operating margin is approximately 7.1% (25.10 / 354.53), down YoY given operating income declined while revenue grew 3.3%, indicating cost pressure. Gross margin at 14.7% shows modest improvement potential; SG&A of 26.37 absorbed roughly half of gross profit, leaving limited operating leverage this quarter. EBITDA margin is 10.6%, implying D&A of 12.55 is a meaningful but manageable cost layer; EBITDA-to-operating income spread suggests some flexibility but not enough to offset cost inflation. The decline in operating income versus revenue growth indicates negative operating leverage in Q1, likely driven by higher labor, fuel, subcontracting, or mix (given the logistics profile). Effective tax rate is 32.6%, not a major driver of YoY delta. Overall, profitability remains moderate with room to recover if costs normalize or pricing improves.

Growth Assessment

Revenue grew 3.3% YoY to 354.53, a steady pace consistent with a stable domestic logistics/auto-transport demand backdrop. However, operating income fell 7.9% and net income fell 7.4%, pointing to weaker profit conversion of growth. The margin compression suggests cost headwinds or less favorable mix (e.g., lower-margin routes or services). EBITDA growth appears muted given the margin at 10.6%; without prior-year EBITDA, the trend is inferred from operating income decline. Sustainability: receivables of 174.31 and OCF/NI of 0.73x indicate revenue growth accompanied by working capital needs; growth quality improves if collections normalize. Outlook hinges on cost pass-through, capacity utilization, and auto production/used-car logistics volumes; if volumes hold and cost pressures ease, incremental margin could recover in subsequent quarters. Reported ROE of 4.0% is subdued; improving asset turnover or margin is key to better growth in equity returns.

Financial Health

Total assets were 715.41 with equity of 439.70, yielding an equity ratio of 60.5%, indicating strong solvency. Total liabilities of 304.17 imply liabilities-to-equity of 0.69x; interest-bearing debt was not disclosed, so leverage quality (net cash/debt) cannot be assessed. Cash and equivalents stood at 166.43, providing a substantial liquidity buffer. Current assets were 382.49, but current liabilities were unreported; conventional current/quick ratios are therefore not calculable. Accounts receivable of 174.31 and inventories of 31.37 suggest working capital intensity typical for logistics; accounts payable was 96.55. Financing cash flow was a net inflow of 2.39 despite dividends of -7.72, implying additional financing sources (likely borrowings) this quarter; exact debt tenor and cost are not disclosed. Overall balance sheet resilience is high due to equity strength and cash reserves, but visibility on debt structure and maturity profile is limited.

Cash Flow Quality

OCF of 12.80 versus net income of 17.47 yields an OCF/NI of 0.73x, indicating below-par cash conversion this quarter. Adding back D&A of 12.55 to net income implies pre-working-capital cash earnings of about 30.02; the gap to OCF suggests approximately -17.2 of working capital and other non-cash adjustments, likely driven by receivables build and timing. Free cash flow was positive at 2.97 after investing CF of -9.83 (capex not separately disclosed but presumably the major component), implying a disciplined investment pace. The positive FCF despite lower OCF indicates manageable capex intensity this quarter. However, reported FCF coverage of dividends is 0.12x, implying dividends substantially exceeded FCF on the reported basis; given cash flow statement shows dividends paid of -7.72 and financing CF net positive, payout metrics may reflect annualized assumptions or additional distributions not itemized here. Earnings quality is acceptable given meaningful non-cash D&A support, but sustained OCF normalization is needed to underpin dividends and reinvestment.

Dividend Sustainability

The calculated payout ratio is shown as 140.6%, while FCF coverage is 0.12x; these indicate potential stress if interpreted on a run-rate basis. However, quarterly timing, possible annualization, and disclosure gaps create reconciliation challenges: cash flow shows dividends paid of -7.72, yet financing CF is net +2.39, implying offsetting financing inflows. With NI at 17.47 and FCF at 2.97, dividends appear covered by earnings but not by FCF on the reported basis. Given strong equity (60.5% ratio) and cash of 166.43, near-term capacity to maintain dividends is supported, but long-term sustainability hinges on improving OCF conversion and capex needs. Policy outlook cannot be confirmed due to unreported DPS; monitoring full-year guidance and historical payout policy is necessary. Treat the 140.6% payout ratio as indicative but not definitive for the quarter.

Risk Assessment

Business Risks:

• Cost inflation (labor, fuel, subcontracting) pressuring margins despite revenue growth
• Cyclical exposure to auto production, new/used vehicle logistics volumes, and auctions
• Customer pricing power and lag in cost pass-through affecting operating leverage
• Seasonality and working-capital intensity impacting quarterly cash conversion
• Execution risk on capacity utilization and route/mix optimization under IFRS reporting

Financial Risks:

• Limited visibility on interest-bearing debt, interest expense, and maturity profile
• Dividend cash outflow potentially exceeding FCF if current trends persist
• Receivables build and potential collection timing risks
• Reliance on financing inflows in a quarter with dividend payments
• Unreported current liabilities obscuring short-term liquidity assessment

Key Concerns:

• Operating income down 7.9% YoY despite 3.3% revenue growth
• OCF/NI at 0.73x indicating weaker cash conversion in Q1
• Payout metrics (140.6% payout, 0.12x FCF coverage) imply potential strain if sustained
• Debt and interest metrics unreported, limiting solvency stress testing
• Need for margin recovery to lift ROE above the current 4.0%

Investment Implications

Key Takeaways:

• Topline resilient (+3.3% YoY) but margin compression led to lower operating and net income
• ROE at 4.0% reflects moderate profitability and asset turnover; improvement requires margin gains
• Cash conversion lagged (OCF/NI 0.73x) due to likely working capital outflows
• Balance sheet strong (equity ratio 60.5%, cash 166.43), supporting flexibility
• Dividend sustainability depends on OCF normalization; reported FCF coverage is weak this quarter

Metrics to Watch:

• Operating margin and gross margin trajectory
• Receivables days and working capital movements
• OCF/NI ratio and FCF run-rate versus dividends
• Any disclosures on interest-bearing debt and interest coverage
• Revenue mix and pricing to assess cost pass-through effectiveness

Relative Positioning: Within Japan-listed logistics/auto-transport peers, Zero appears solidly capitalized with a high equity ratio and adequate cash, but currently exhibits weaker cash conversion and margin pressure versus revenue growth; near-term positioning hinges on cost normalization and working capital management to defend returns.

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