1Q revenue increased, but margins declined, resulting in lower profit in both segments.

Consolidated revenue in FY2027-Q1 was ¥313,148 million, up 7.8% from approximately ¥290,601 million in the year-earlier period. However, operating profit was ¥7,701 million, below ¥9,876 million in the year-earlier period, representing a 22.0% decline. Operating margin was approximately 2.46% on a simple calculation, down approximately 0.94 percentage points from approximately 3.40% in the year-earlier period. Revenue growth alone looked solid, but this was a quarter in which profitability clearly deteriorated.

By segment, revenue in the IT Infrastructure Distribution business rose 8.1% year on year to ¥310,098 million, accounting for nearly all consolidated revenue, while operating profit fell 21.4% to ¥7,461 million. The Industrial Machinery business reported revenue of ¥3,050 million, down 21.1%, and operating profit of ¥236 million, down 37.7%, with the decline in profit exceeding the decline in revenue. In other words, the deterioration in 1Q profit can be attributed to lower margins in the IT business combined with the effects of revenue-recognition timing and unit sales in the Industrial Machinery business.

The company attributed the decline in profit to the partial inability to fully pass higher raw material and procurement costs through to selling prices, as well as large project orders that left both profit and profit margins below the year-earlier levels. Large projects can boost revenue, but when project-level profitability is low, they can reduce gross margins. The financial summary available for review does not disclose project-level profit, the amount of higher costs absorbed through pricing, or product-level gross margins for the delayed price pass-through or large projects.

In the next interim period, FY2027-H1, key points will be whether consolidated operating profit reaches at least ¥18,250 million, equivalent to half of the full-year forecast of ¥36,500 million, and whether operating margin exceeds the 1Q level of 2.46%. In the IT Infrastructure Distribution business, it will be necessary to assess whether margins can recover while revenue continues to grow. In the Industrial Machinery business, the extent to which 2Q project revenue can offset the 1Q profit of ¥236 million will also require attention.