Higher sales, but material costs weigh on earnings; focus turns to confirming profit recovery in FY2027-H1

FY2027-Q1 sales were ¥86,368 million, up ¥5,690 million, or 7.1%, from ¥80,678 million in the same period of the previous year. Operating profit, however, declined ¥294 million to ¥4,360 million from ¥4,654 million, resulting in higher sales but lower profit. The operating margin fell to approximately 5.05% from approximately 5.77% a year earlier, a decline of about 0.72 percentage points. The fact that larger sales have not translated directly into profit growth will be the first issue to examine in the next interim results.

Among the factors driving the change in profit, foreign exchange movements contributed ¥800 million to profit, while personnel expenses and other expenses reduced profit by ¥700 million and ¥400 million, respectively. Within the foreign-exchange impact, the contribution to sales was limited to ¥400 million, while the impact of the material-cost ratio was a negative ¥1.1 billion. In addition, higher wages and salaries imposed a ¥700 million burden and higher logistics costs a ¥200 million burden, while lower retirement benefit expenses and lower depreciation each contributed ¥300 million positively. Accordingly, in FY2027-H1 it will be necessary to determine how much of the increase in material costs, including copper, was absorbed through pricing improvements, productivity gains and logistics-cost management, even excluding the tailwind from foreign exchange.

The company’s FY2027 full-year forecast calls for sales of ¥340,000 million, operating profit of ¥19,000 million, ordinary profit of ¥18,500 million and net profit attributable to owners of the parent of ¥11,500 million. FY2027-Q1 results represented approximately 25.4% of the full-year sales forecast and approximately 22.9% of the operating-profit forecast, a gap of approximately 2.5 percentage points. Although it is difficult to say that progress is significantly out of line with the elapsed share of the fiscal year, a further deterioration in cumulative first-half operating-profit progress would require an explanation of the second-half weighting and a review of the assumptions underlying the full-year forecast.

At present, the company has not disclosed orders received, order backlog, the breakdown of unit prices and volumes, or the sales and profit levels required in the second half to achieve its full-year forecast. In FY2027-H1, it will be important to see whether standalone second-quarter operating profit exceeds ¥4,360 million, whether the impact of the material-cost ratio has narrowed, and how much has been recovered through pricing improvements. Even if full-year operating profit guidance of ¥19,000 million is maintained, the specificity of the explanation will be important, including the foreign-exchange and sales-volume assumptions under which weak four-wheel demand and higher raw-material costs will be absorbed.