First-quarter operating earnings declined while ordinary and net income increased

In FY2027-Q1, revenue was ¥2,241 million and operating income was ¥84 million, down from revenue of ¥2,344 million and operating income of approximately ¥117 million in the year-earlier quarter. The operating margin declined from approximately 5.0% to approximately 3.8%, indicating that profitability at the operating level deteriorated more than the contraction in revenue. First-quarter progress against the full-year operating income forecast of ¥250 million was approximately 33.6%, which appears to be on track, but the year-on-year decline in earnings is the more important point.

By contrast, ordinary income was ¥284 million, up 16.1% year on year, and quarterly net income attributable to owners of the parent was ¥269 million, up 59.9%. The large gap from operating income of ¥84 million reflects higher dividend income and other factors cited by the company as drivers of the increase in ordinary income. The company also recorded a ¥92.631 million gain on sale of investment securities as extraordinary income, so the increase in net income cannot be explained by operating activities alone. At the next interim results announcement, it will be important to see whether dividend income, the gain on sale of investment securities and other non-operating and extraordinary gains and losses are disclosed separately.

Compared with the year-earlier quarter, the decline in operating income was larger than the decline in revenue. This suggests that while lower demand for domestic paper and pulp felts affected volumes, fixed costs and production-system efficiencies may not have been sufficiently absorbed in the first quarter. However, the first-quarter earnings release did not quantify the individual contributions of raw-material prices, product mix, production efficiency, or selling, general and administrative expenses.

At the next results announcement, it will be important to confirm whether cumulative operating income exceeds the ¥268 million recorded in the year-earlier period and whether the operating margin approaches the FY2026 full-year result of 4.7% from 3.8% in the first quarter. If ordinary income and net income alone increase without a recovery in the operating margin, achievement of the full-year operating income forecast of ¥250 million should be viewed as highly dependent on non-operating income and one-off factors.