Service-part recovery in the second quarter will determine first-half earnings

First-quarter consolidated revenue was ¥5,405 million, up 6.1% year on year, while operating profit was ¥486 million, down 26.2%. The operating margin on revenue also fell 3.9 percentage points, from 12.9% a year earlier to 9.0%, so it is necessary to confirm whether margins recover across the first half rather than treating this as merely a timing issue in revenue recognition.

Revenue from the construction-equipment filter business was ¥4,850.144 million, up 6.5% year on year, but segment profit was ¥602.831 million, down 18.5%. The revenue bridge showed line products up ¥253 million, while service parts declined by ¥150 million. The company explained that shipments of the highly profitable service and replacement parts had slipped into the following quarter. Accordingly, in the second quarter it will be important to see not only a recovery in service-part revenue, but also whether an improved sales mix is reflected in segment profit.

The full-year forecast is revenue of ¥22,560 million and operating profit of ¥2,825 million. First-quarter progress was approximately 24.0% for revenue and 17.2% for operating profit. On a simple half-year allocation, first-half revenue of ¥11,280 million and operating profit of ¥1,412.5 million would be required, but the company has not quantified seasonality. If first-half results fall below these benchmarks, additional explanation will be required regarding the scale of service-part recovery needed in the second half and the basis for maintaining the full-year forecast.

At the next results announcement, we want to confirm cumulative first-half revenue and segment profit for construction-equipment filters, as well as second-quarter service-part revenue, the mix relative to line products, and the amount of delayed shipments cleared. Since first-quarter gross margin, SG&A expenses, and service-part volume and pricing were not disclosed, it will also be important to see whether the disclosures identify whether any improvement above the 9.0% operating margin was driven by the sales mix or by cost absorption.