Assessing the likelihood of achieving ¥150 billion in full-year operating profit after 1Q operating profit declined despite higher revenue

FY2027-Q1 revenue was ¥1,250.9 billion, operating profit was ¥42.6 billion, and profit for the quarter attributable to owners of the parent was ¥49.2 billion. Operating profit, however, declined ¥33.8 billion year on year, indicating that higher revenue has not translated directly into profit growth. The 1Q operating margin was approximately 3.4%, and appears to have declined from the year-earlier level, making the quality of revenue growth and the timing of margin recovery important points for the next results announcement.

The company maintained its FY2027 full-year forecasts of ¥5.2 trillion in revenue, ¥150 billion in operating profit, ¥180 billion in profit before tax, and ¥130 billion in profit for the year attributable to owners of the parent. 1Q operating profit of ¥42.6 billion represents 28.4% of the full-year forecast, meaning that ¥107.4 billion in operating profit would be required over the remaining 3 quarters on a simple calculation. The company describes 1Q progress as “solid,” but has not provided a quantitative progress rate for cumulative first-half operating profit or against the full-year forecast, so it will be necessary to confirm whether this gap is filled in FY2027-H1.

The factors behind the 1Q decline were wide-ranging, including a ¥35.3 billion decline from sales activities, ¥17.0 billion from raw materials and market conditions, ¥18.0 billion from manufacturing fixed costs, ¥2.9 billion from research and development expenses, and ¥12.5 billion from manufacturing activities. These were partly offset by a ¥13.5 billion positive foreign-exchange impact, a ¥15.6 billion profit contribution from lower warranty repair costs, a ¥10.2 billion profit contribution from environmental regulatory costs, and a ¥5.2 billion benefit from cost-reduction activities. At the next results announcement, it will be necessary to distinguish on a quarterly basis whether sales incentives and manufacturing fixed costs resulted from temporary shipment constraints or represent structural profit pressures in North American sales.

Maintaining the full-year operating profit forecast of ¥150 billion will require the factors behind the 1Q decline to reverse in the second half, or continued improvement in product mix and cost reductions together with lower warranty repair costs. In FY2027-H1, key measures of the credibility of the guidance will include the company’s first-half operating profit, year-on-year change, progress against the full-year forecast, and how specifically it explains the profit required over the remainder of the fiscal year.