FY2027-Q1: Assessing the disconnect between the expected sales recovery and operating profit decline

For the fiscal year ended May 2026, revenue was ¥11,221 million, down 2.6% year on year, and operating profit was ¥940 million, down 8.9%. In contrast, the company forecasts revenue of ¥11,700 million for the fiscal year ending May 2027, up 4.3% year on year, while operating profit is forecast at ¥750 million, down 20.3%. The clear disconnect in performance, with profit declining despite a recovery in revenue, will be the central issue in the next earnings release.

Looking at cumulative results, first-quarter revenue for the fiscal year ended May 2026 was ¥2,762 million and operating profit was ¥222 million, representing a year-on-year decline in both revenue and profit from ¥2,951 million and ¥263 million, respectively. Revenue and operating profit were ¥5,631 million and ¥503 million, respectively, for the first half, and ¥8,268 million and ¥717 million, respectively, for the nine-month period. The year-on-year decline in operating profit narrowed slightly from 21.1% in the first half to 19.8% for the nine-month period, but results had not yet recovered. A simple calculation of the difference from the full-year results gives ¥2,953 million in revenue and ¥223 million in operating profit for the equivalent of the fourth quarter, but these are not disclosed figures for a standalone fourth quarter.

The core paperboard business generated revenue of ¥9,823 million for the fiscal year ended May 2026, down 3.6% year on year, and segment profit of ¥940 million, down 12.7%. Paperboard sales volume also declined 1.0% year on year, indicating that the drop in revenue was accompanied by weak volume rather than being attributable solely to accounting factors. Although the company expects consolidated revenue to increase for the fiscal year ending May 2027, its operating profit forecast is lower at ¥750 million. This may assume that changes in the export ratio or product mix, the adoption of price revisions, and increases in raw material, fuel and fixed costs will outweigh the benefit of higher revenue.

In the next Q1, we want to first assess whether revenue has increased from the year-earlier benchmark of ¥2,762 million and whether the operating margin has improved even if revenue has risen. The full-year operating margin was 8.4%, while the forecast for the fiscal year ending May 2027 implies a decline to approximately 6.4%, calculated as ¥750 million divided by ¥11,700 million. Key indicators at the Q1 stage will include whether paperboard sales volume has returned to 0% or higher, whether higher selling prices are offsetting lower volume, and whether any changes to the full-year forecast are explicitly disclosed.