Will the pattern of a declining operating margin despite revenue growth continue in the first half?

Revenue in the first quarter of the fiscal year ending March 2027 was ¥6,284 million, up ¥336 million, or 5.6%, from ¥5,948 million in the same period last year. Operating profit, however, was ¥232 million, down ¥30 million, or 11.5%, from ¥262 million. The calculated operating margin fell by approximately 0.7 percentage points, from approximately 4.4% to approximately 3.7%, making clear the pattern of margin contraction amid revenue growth.

The company explained that sales volumes increased across its domestic products and that the effects of sales-price revisions also lifted revenue. However, it attributed the decline in operating profit to higher personnel expenses and depreciation in Japan and overseas. As of the first quarter, it had not separately disclosed the revenue increase attributable to price revisions, the revenue increase attributable to higher volumes, or the increase in personnel expenses and depreciation. Accordingly, it is difficult to determine without additional first-half disclosure whether price pass-through temporarily exceeded cost inflation or whether volume growth was concentrated in lower-margin products.

The full-year forecasts are revenue of ¥24,323 million, operating profit of ¥392 million, ordinary profit of ¥602 million, and profit attributable to owners of the parent of ¥416 million. Progress against these forecasts in the first quarter was 25.8% for revenue, 59.2% for operating profit, 50.5% for ordinary profit, and 52.2% for net profit. The high operating-profit progress rate should not simply be taken as evidence of strong performance. Because the full-year operating-profit forecast is low at ¥392 million, we must also assess the possibility that the decline in profit will deepen from the second quarter onward and that the forecast will be revised after the first half.

At the next earnings release, we will review first-half cumulative revenue and operating profit, together with the contributions from sales volume, selling prices, manufacturing costs, selling, general and administrative expenses, depreciation, and personnel expenses. Even if first-half operating profit exceeds ¥196 million, whether progress against the full-year forecast of ¥392 million is sufficient after taking seasonality into account is a separate question. The company’s own assessment of its first-half results and whether it maintains or revises its full-year forecast will need to be considered together.