Kao Q2 FY2026: Profit Jumps 38.5% as Cosmetics Turns Profitable

Kao posted consolidated revenue of ¥871.9 billion, up 7.8% year on year, for the first half of the fiscal year ending December 2026. Operating profit surged 38.5% to ¥95.8 billion, and net profit attributable to owners of the parent rose 32.3% to ¥65.7 billion.

Revenue growth included a 4.4 percentage-point boost from a weaker yen and 3.4% organic growth, with price increases contributing 2.1 points and volume/mix 1.3 points. The first quarter saw a ¥11.5 billion land sale gain related to logistics optimization; excluding that one-off, operating profit still expanded firmly.

Global Consumer Care sales grew both at home and abroad, while the Chemical business benefited from improved margins on oils and fats and higher sales of electronic materials. A standout was the cosmetics segment: operating profit swung from ¥0.3 billion a year ago to ¥5.8 billion, underscoring progress in the mid-term “K27” plan aimed at reinforcing earnings power with replicability.

Average exchange rates shifted markedly in Kao’s favour: the dollar averaged ¥159.40 (versus ¥144.49 a year earlier), the euro ¥185.34 (versus ¥163.73), and the yuan ¥23.42 (versus ¥19.98). Overseas revenue rose to 45.4% of the total. On the back of the strong results, Kao raised its full-year revenue, operating profit, and net income forecasts, putting record profits within reach.

All five reporting segments delivered year-on-year revenue and operating profit growth. The cosmetics business swung decisively into the black.

Hygiene & Living Care sales and profit grew, led by fabric and home care products in Japan, where premiumisation and new-market-creating innovations lifted performance. Sanitary protection products such as Laurier expanded in China, while Merries baby diapers faced intense competition in Japan.

Health & Beauty Care benefited from the global expansion of Biore UV care and the premium hair-care line THE ANSWER. In the Americas, the Bondi Sands brand recovered. Some European professional hair-care channels felt the impact of an economic slowdown, but overall results were solid.

Cosmetics was the standout, with operating profit swinging from ¥0.3 billion to ¥5.8 billion. In Japan, strengthened promotion and wider distribution for Curél and KATE paid off. Profitability improved in China as the earnings base was restructured, and KATE also grew in Thailand. European markets remained soft, but overseas sales still posted significant growth.

Business Connected rode higher demand for commercial hygiene products in the food-service and nursing-care sectors, as well as steady sales of consumables for lodging and leisure.

Chemical profited from passing through higher oils and fats raw-material costs, while informational materials (semiconductors, HDDs) and high-value-added electronic materials contributed to earnings. The accounting treatment of unrealised profits also provided a tailwind.

Total assets at the half-year end stood at ¥1,898.3 billion, up ¥23.3 billion from the previous fiscal year-end. Equity attributable to owners of the parent reached ¥1,119.4 billion, raising the equity ratio to 59.0%. Interest-bearing debt (bonds and borrowings) declined ¥2.3 billion to ¥132.3 billion, while cash and cash equivalents totalled ¥326.6 billion.

Operating cash flow expanded 29.0% to ¥55.2 billion. Investing activities generated a net outflow of ¥12.0 billion, including ¥14.2 billion in proceeds from the sale of tangible fixed assets (the land sale). Free cash flow was positive. Financing activities included ¥34.8 billion in dividend payments, yet the overall cash position increased.

The interim dividend was raised to ¥78.00 per share (before the stock split). The forecast year-end dividend is ¥39.00 (post-split), implying an annual equivalent of ¥156.00 on a pre-split basis, up from ¥154.00 in the prior year. Share buybacks were modest, but the company signalled a continued commitment to enhancing shareholder value.

In its interim filing, Kao flagged the following principal risks:

• Raw-material price volatility: Rising energy costs and supply-chain disruptions linked to Middle East tensions are pushing up procurement costs for oils and fats. Success in passing on those costs will directly affect profits.
• Currency fluctuations: With 45.4% of revenue generated overseas, a stronger yen would weigh on earnings. The full-year plan assumes ¥157 per dollar; any appreciation above that level would pose a headwind.
• Intensifying competition: In Japan, competitive pressure in baby diapers is clear. Brand competition in cosmetics and hair care is also growing globally.
• Economic slowdown: Sluggish consumer spending in Europe is already affecting parts of the business, and broader economic uncertainty creates downside demand risks.
• Geopolitical risks: Middle East tensions and international trade friction add high uncertainty to raw material procurement and product exports.

Alongside its interim results, Kao raised its consolidated forecasts for the fiscal year ending December 2026, citing faster-than-planned execution in the first half, ongoing forex support, and continued growth in Global Consumer Care.

The revised projections are:

The new operating profit target is 16.2% above the prior year and would mark a record high. The assumed exchange rates are ¥157 per dollar, ¥182 per euro, and ¥22.8 per yuan. Despite raw-material cost pressure, management expects price revisions and cost reductions to absorb the impact. The upward revision signals accelerating progress toward the K27 mid-term plan and a return to a clear growth trajectory.

R&D spending edged down slightly to ¥31.2 billion (from ¥31.4 billion a year earlier), maintaining a 3.6% revenue ratio. Resources were directed toward higher-functionality skincare and haircare, as well as digital and AI-driven marketing.

Capital expenditure on tangible fixed assets amounted to ¥28.6 billion, roughly in line with the prior year, focused on production efficiency and digital transformation. The land sale was part of an ongoing logistics optimisation effort, running in parallel with asset-efficiency improvements.