Q1 profit improves on fixed-cost reductions, but machine-tool revenue continues to decline

Consolidated revenue in FY2027-Q1 was ¥4,331 million, down 10.7% from ¥4,852 million in the same period of the previous year. Operating profit, however, rose sharply to ¥178 million from ¥29 million, improving the operating margin from approximately 0.6% to approximately 4.1%, a gain of approximately 3.5 percentage points. Ordinary profit was also ¥125 million, while quarterly net profit attributable to owners of the parent was ¥95 million. Net profit was nevertheless down 10.1% year on year, so the improvement at the operating level has not translated directly into higher bottom-line profit.

By segment, revenue in the machine-tool-related business fell 37.0% year on year to ¥1,035 million, and the business posted an operating loss of ¥50 million. This was a ¥77 million reduction from the ¥127 million operating loss in the same period of the previous year, but the decline in revenue was substantial, leaving the segment with an operating margin of approximately minus 4.8%. By contrast, the parts-processing-related business posted revenue of ¥3,278 million, up 2.7% year on year, and operating profit of ¥217 million, up 51.2%. Its operating margin reached approximately 6.6%. At this stage, the improvement in company-wide profitability depends more on better margins in parts processing than on a recovery in machine-tool revenue.

The company cited expense-reduction measures implemented in the previous fiscal year as factors behind the increases in operating and ordinary profit, and attributed the improvement in the machine-tool-related business to the effect of fixed-cost reductions from structural reforms carried out over previous years. However, it has not disclosed a breakdown of the profit impact by expense reductions, fixed-cost reductions or improved project profitability. In parts processing, the company has explained that production volumes increased, but it has not disclosed the contribution from higher volumes or utilization rates. The extent to which the ¥178 million operating profit represents sustainable improvement therefore needs to be assessed in the next earnings release.

In FY2027-H1, the first points to monitor will be whether revenue in the machine-tool-related business recovers from its 37.0% year-on-year decline and whether its ¥50 million operating loss can be turned into a profit. At the same time, it will be necessary to assess whether the parts-processing-related business can maintain or increase its ¥217 million operating profit and whether the benefits of fixed-cost reductions continue into the second quarter. If machine-tool revenue continues to decline and profit is secured solely through cost reductions, the improvement should be viewed as dependent on temporary cost benefits rather than full-year growth.