Kobe Steel Q1 FY2027: Operating profit slides 35% but full-year outlook raised
Revenue
¥578.3B
+1.6%
Full-year forecast
¥2.7T
Operating Profit
¥20.4B
-34.8%
Full-year forecast
¥150.0B
Net Income
¥12.2B
-68.4%
Full-year forecast
¥100.0B
Operating Margin
3.5%
Kobe Steel reported a 1.6% rise in Q1 FY2027 revenue to ¥578.3bn, but operating profit fell 34.8% to ¥20.4bn as its steel and aluminum segment swung to a loss. Net profit plunged 68.4% to ¥12.1bn, also hurt by the absence of a ¥14.4bn securities gain. The full-year outlook calls for a 15.5% rebound in operating profit to ¥150bn.
Key Results
Kobe Steel’s first quarter ended June 2026 saw revenue edge up to ¥578.3 billion (up 1.6% year on year), but operating profit tumbled 34.8% to ¥20.4 billion. The steel and aluminum business swung to a loss, while robust non-steel segments cushioned the blow. Gross margin narrowed from 17.1% to 15.9%, and higher SG&A costs amplified the operating decline. Recurring profit dropped 21.2% to ¥22.6 billion, despite a rise in equity-method investment income to ¥5.0 billion (from ¥3.7 billion a year earlier) and a weaker yen. Net income attributable to parent shareholders slumped to ¥12.1 billion, down 68.4%, largely due to the prior-year booking of a ¥14.4 billion gain on sale of investment securities and higher tax expenses. The company maintained its full-year outlook, forecasting revenue of ¥2,690.0 billion (up 10.4% from FY2026) and operating profit of ¥150.0 billion (up 15.5%).
Segment Performance
Aggregate segment external revenue grew 1.6% to ¥577.0 billion, but total segment profit fell from ¥28.2 billion to ¥23.0 billion. The table below breaks down performance by segment.
| Segment | Revenue (¥bn) | YoY Change | Segment Profit/Loss (¥bn) | YoY Change |
|---|---|---|---|---|
| Steel & Aluminum | 2,416 | -3.0% | -23 | turned to loss |
| Advanced Materials | 909 | +25.1% | 81 | >+110x |
| Welding | 259 | +15.4% | 23 | +154% |
| Machinery | 568 | -8.7% | 62 | -40.3% |
| Engineering | 392 | +22.4% | 60 | +416% |
| Construction Machinery | 874 | +4.8% | 9 | -24.2% |
| Power | 348 | -23.9% | 16 | -80.5% |
| Others | 9 | -7.9% | 15 | +439% |
Steel & Aluminum sank into the red amid sluggish steel demand and persistently high raw material costs, compounded by inventory valuation losses. Advanced Materials posted a tenfold-plus profit surge, driven by strong automotive forging demand. Engineering saw a profit jump of over 400% as plant construction progressed. Machinery was hit by the payback from large orders in the prior year and higher R&D spending. Power suffered a steep profit decline on weaker wholesale electricity prices and fuel cost adjustment lags.
| Segment | Revenue | Share | Op. Profit | Op. Margin |
|---|---|---|---|---|
| Steel & Aluminum | ¥241.7B | 42% | ¥-2.3B | -1.0% |
| Advanced Materials | ¥90.9B | 16% | ¥8.1B | 8.9% |
| Welding | ¥26.0B | 5% | ¥2.3B | 9.0% |
| Machinery | ¥56.9B | 10% | ¥6.3B | 11.0% |
| Engineering | ¥39.2B | 7% | ¥6.1B | 15.4% |
| Construction Machinery | ¥87.5B | 15% | ¥916M | 1.0% |
| Power | ¥34.9B | 6% | ¥1.7B | 4.8% |
| Others | ¥942M | - | ¥1.5B | - |
Financial Position and Capital Policy
Total assets at quarter-end stood at ¥2,830.1 billion (down ¥35.0 billion from the end of FY2026), as receivables collection was partly offset by higher inventories. Liabilities fell ¥29.6 billion to ¥1,505.0 billion on bond redemptions and loan repayments. Net assets decreased ¥5.3 billion to ¥1,325.1 billion, resulting in an equity ratio of 44.4% (up 0.4 percentage points), indicating improved financial soundness. The company left its dividend forecast unchanged, with an interim and year-end payout of ¥40 each, for an annual total of ¥80 per share, in line with FY2026. Depreciation for the quarter was ¥30.5 billion, roughly flat versus ¥30.0 billion a year ago. No quarterly cash flow statement was prepared.
Risks and Challenges
Kobe Steel’s performance remains exposed to several factors:
- Steel demand: Uncertainty persists in domestic construction and automotive steel markets.
- Raw material prices: Elevated iron ore and coal costs continue to pressure margins.
- Currency volatility: A stronger yen than assumed could hurt export competitiveness.
- Power business: Earnings are tied to market prices, with time-lag effects from fuel cost adjustments and exposure to declining spot prices.
- Global macro risks: US-China trade tensions and geopolitical uncertainties may ripple into demand for construction machinery and advanced materials.
Full-Year Outlook
Despite a weak Q1, Kobe Steel projects a recovery for the fiscal year ending March 2027. The updated forecasts are shown below.
| Item | FY2027 Full-Year Forecast | YoY Change |
|---|---|---|
| Revenue | ¥2,690.0 billion | +10.4% |
| Operating Profit | ¥150.0 billion | +15.5% |
| Recurring Profit | ¥120.0 billion | -1.1% |
| Net Income | ¥100.0 billion | +6.7% |
The operating profit rebound is backed by sustained strength in Advanced Materials and Engineering, plus an expected second-half recovery in steel. Net income growth is tempered by the absence of the previous year’s special gain, but underlying business profitability is set to improve. The annual dividend is kept at ¥80 per share.
Analyst take
Kobe Steel got off to a rough start in Q1 as its Steel & Aluminum segment swung to a loss, but non-steel operations like Advanced Materials and Engineering provided support. The full-year forecast upgrade reflects expectations of continued strength in those businesses and a recovery in steel demand in the second half. However, the big profit drops in Power and sluggish Construction Machinery are concerns. The shift toward growth in non-steel units is becoming clear, signaling a transformation in the earnings structure. Still, Steel & Aluminum remains a large weight in sales and profit, leaving results sensitive to market conditions. Investors should watch raw material price trends and the pace of recovery in auto-related demand.