Operating margin declines despite sales growth, with U.S. cost pressures in focus

In the first quarter from March to May 2026, net sales rose 12.2% to ¥56,809 million from ¥50,620 million in the year-earlier quarter. Operating profit, however, fell 9.3% to ¥9,975 million from ¥10,998 million. The operating margin declined by approximately 4.2 points, from 21.7% to 17.6%, as cost pressures outweighed the benefit of higher sales. Ordinary profit rose 0.9% to ¥10,506 million, while quarterly net profit attributable to owners of the parent rose just 0.2% to ¥7,429 million. Although non-operating factors such as foreign exchange gains may have partly absorbed the deterioration at the operating level, the details have not been disclosed in sufficient numerical detail.

The disclosure on U.S. tariffs is relatively specific among the factors behind the profit deterioration. Tariff costs increased by ¥3,537 million, of which ¥1,663 million was passed through to selling prices, while the company stated that the negative profit impact was ¥1,873 million. Accordingly, in the first half it will be important to determine whether price pass-through is keeping pace with additional cost increases and whether it has affected sales volumes or discount terms for large customers. By contrast, the increase in freight costs associated with higher crude oil prices and the impact of volume discounts resulting from a higher proportion of sales to major rental companies were not separately disclosed in the information available this time.

The U.S. segment generated sales of ¥31,180 million, approximately 54.9% of total company sales, and led growth with a 16.1% year-on-year increase. Segment profit, however, fell 31.9% to ¥1,522 million, reducing the profit margin on sales to approximately 4.9%. Even if unit sales and price pass-through in the U.S. push up sales, the quality of earnings cannot be assessed from first-half sales growth alone if tariffs, transportation costs and discounts to rental companies continue to pressure profit.

At the next results announcement, the key issue will be whether the effects of tariffs, price pass-through, freight costs and discounts can be disclosed separately, at least on a first-half cumulative basis. In addition to whether consolidated operating margin exceeds the first-quarter level of 17.6% and the gap with 21.7% in the year-earlier period narrows, it will be necessary to check whether U.S. segment profit exceeds ¥1,522 million and turns from a year-on-year decline to growth. If these impacts continue to be presented on an aggregated basis, it will be difficult to determine whether first-half profit recovery is driven by higher volumes, price pass-through or temporary cost reductions.