Nippon Yusen Kabushiki Kaisha FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.18T
• Operating Income: ¥68.05B
• Net Income: ¥105.54B
• EPS: ¥239.34

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q2 was a sharp earnings normalization quarter for Nippon Yusen (NYK), with profit contracting materially amid weaker container/bulk markets but supported by robust operating cash flow and a solid balance sheet. Revenue declined 10.2% YoY to 11,821.01, while operating income fell 41.2% YoY to 680.46 and ordinary income dropped 56.1% YoY to 1,268.33, highlighting margin pressure and reduced non-operating tailwinds. Net income decreased 61.5% YoY to 1,022.52, bringing net margin to 8.7% (approx. 865 bps lower than prior-year’s ~20.2%). Operating margin compressed to 5.8%, down about 304 bps from an estimated ~8.8% a year ago. Gross margin printed at 17.5% this quarter, with SG&A at 1,384.38, indicating limited operating leverage as top-line softened. Non-operating income was sizable at 751.98 and non-operating expenses were 164.11, underscoring continuing reliance on below-the-line items (non-operating income ratio 73.5%), likely including equity-method affiliates and financial gains. Earnings quality was strong this quarter as operating cash flow of 2,922.42 was 2.86x net income, suggesting cash realization despite earnings decline. Liquidity remains healthy with a current ratio of 150.8% and quick ratio of 140.5%, and leverage is conservative with D/E at 0.51x and interest coverage at 7.16x. ROE was a muted 3.5% on the DuPont base (net margin 8.7%, asset turnover 0.270, leverage 1.51x), reflecting post-boom normalization in profitability. ROIC of 1.7% indicates sub-WACC returns this period and reinforces the normalization thesis. Financing cash outflows of -848.16 included share repurchases of 667.30, signaling shareholder returns despite earnings contraction. Effective tax rate at 18.1% was benign, aiding bottom-line, but ordinary income fell materially, suggesting weaker contribution from affiliates/market factors. Forward-looking, earnings sensitivity to freight rates, bunker prices, and FX remains high; cash generation and balance sheet strength provide buffer for fleet renewal and shareholder returns, but ROIC must recover to sustain capital returns. The near-term setup hinges on container rate trajectory, bulk demand, and the performance of key equity-method investees. Overall, fundamentals are sound in liquidity/solvency, but profitability/ROIC are the pressure points.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.5% = Net Profit Margin (8.7%) × Asset Turnover (0.270) × Financial Leverage (1.51x). The largest change driver vs last year is the net profit margin, given net income declined 61.5% on a 10.2% revenue decline while balance sheet leverage stayed conservative. Operating margin compressed from an estimated ~8.8% to 5.8% (≈ -304 bps), and net margin from ~20.2% to 8.7% (≈ -1,153 bps), reflecting weaker markets and reduced one-off/non-operating tailwinds. Business drivers: normalization in container shipping spreads and softer bulk segments reduced pricing and volumes; non-operating contributions (likely equity-method income and financial gains) also tapered vs peak conditions. Sustainability: margin compression appears cyclical rather than one-off; sustained recovery depends on freight rate improvements and affiliate earnings. Watch for SG&A discipline as revenue falls—current SG&A was sizeable (1,384.38); if SG&A growth outpaces revenue in future quarters, operating leverage will remain negative.

Growth Assessment

Top-line contracted 10.2% YoY to 11,821.01 amid industry normalization. Operating income fell 41.2% YoY to 680.46 and ordinary income 56.1% YoY to 1,268.33, indicating both core operations and affiliate/market income weakened. Net income decreased 61.5% YoY to 1,022.52, with effective tax of 18.1% offering limited cushion. Growth drivers are constrained by lower freight rates and potential volume softness; upside hinges on container rate recovery and stable bulk demand. Non-operating income (751.98) remains an important contributor; however, its volatility limits visibility. EBITDA was 1,440.94 (margin 12.2%), evidencing some buffer from depreciation-heavy asset base. Outlook: base case is continued normalization with quarter-to-quarter volatility tied to spot rates, USD/JPY, and bunker costs; structural growth requires disciplined capacity, fleet efficiency, and higher ROIC on new investments.

Financial Health

Liquidity is solid: current ratio 150.8% and quick ratio 140.5%, with cash and deposits of 2,835.02 versus current liabilities of 5,418.93. Working capital stands at 2,753.77, cushioning short-term needs. No warning triggers: Current Ratio > 1.0 and D/E 0.51x (<2.0). Maturity profile appears manageable: short-term loans of 482.00 are well covered by cash; long-term loans of 5,519.75 are supported by strong equity of 28,931.88. Balance sheet strength is underpinned by substantial investment securities (18,631.16), though market value volatility is a consideration. No off-balance sheet obligations were reported in the provided data; contingent liabilities or charter commitments may exist but are not disclosed here.

Cash Flow Quality

OCF/Net Income at 2.86x signals high earnings quality this quarter, likely aided by working capital inflows and depreciation (760.48). Free cash flow was not disclosed; however, with OCF at 2,922.42 and financing outflows including buybacks of 667.30, internal cash generation appears ample for shareholder returns and debt service. With interest expense at 94.98 and coverage 7.16x, cash interest burden is manageable. No explicit signs of working capital manipulation can be inferred from the limited disclosure; the strong OCF versus NI implies cash realization, but detailed AR/AP/inventory movements are unavailable.

Dividend Sustainability

Dividend data were not disclosed; however, the calculated payout ratio of 138.0% suggests distributions (dividends plus possibly buybacks) in excess of current earnings. Without FCF or capex details, sustainability cannot be confirmed. Given robust OCF (2,922.42) and conservative leverage, near-term coverage of shareholder returns is plausible, but sustained payout >100% would be risky if freight markets remain soft and ROIC (1.7%) stays below target. Policy outlook likely emphasizes flexibility—variable dividends aligned with earnings normalization and opportunistic buybacks, contingent on market conditions and affiliate income.

Risk Assessment

Business Risks:

• Freight rate volatility in container and bulk segments impacting pricing and utilization
• Dependency on non-operating and affiliate income (751.98 non-operating income; potential equity-method volatility)
• Fuel (bunker) price fluctuations affecting voyage costs and margins
• FX exposure (USD/JPY) impacting revenues and costs
• Asset value risk on vessels and investment securities (18,631.16) with potential impairment or mark-to-market swings
• Environmental regulations (IMO decarbonization) requiring elevated capex and operating changes

Financial Risks:

• ROIC at 1.7% well below typical cost of capital, pressuring long-term value creation
• Earnings normalization leading to lower coverage of dividends/shareholder returns (payout ratio 138%)
• Ordinary income down 56.1% YoY, indicating high sensitivity to non-operating items
• Interest rate risk on 5,519.75 long-term loans and 482.00 short-term loans amid changing rate environment

Key Concerns:

• Margin compression: operating margin ~5.8% vs ~8.8% estimated prior year
• Net margin deterioration to 8.7% from ~20.2% amid weaker markets
• Visibility limited as equity-method income breakdown is unreported
• Potential capex needs for fleet renewal not disclosed; could weigh on future FCF

Investment Implications

Key Takeaways:

• Earnings have normalized sharply with significant YoY declines in operating, ordinary, and net income
• Liquidity and leverage are solid, providing resilience
• Cash generation is strong relative to earnings (OCF/NI 2.86x), offering near-term flexibility
• Profitability and ROIC are the critical weak spots; recovery depends on rate environment and affiliate performance
• High reliance on non-operating items underscores earnings volatility risk

Metrics to Watch:

• Container freight indices (e.g., SCFI) and bulk time-charter rates
• Equity-method/affiliate income trends (particularly container JV contributions)
• USD/JPY and bunker fuel (VLSFO) prices
• Capex and fleet renewal commitments versus OCF
• Operating margin trajectory and SG&A discipline
• ROIC versus management targets and WACC

Relative Positioning: Within the Japanese shipping cohort, NYK exhibits strong balance sheet resilience and cash generation but currently subpar ROIC and compressed margins, reflecting sector-wide normalization; performance will hinge on exposure mix (container vs bulk), affiliate income stability, and execution on cost and capital discipline.

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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