LIXIL Q2 FY2027: Sales rise, but company swings to interim loss

LIXIL reported first-half revenue of ¥762.4 billion, up 3.6% from a year earlier, while operating profit fell 44.1% to ¥6.4 billion. Net income attributable to owners of the parent swung from a year-earlier profit to a ¥4.6 billion loss. Business profit declined 67.3% to ¥5.5 billion.

• Gross profit: Despite higher revenue, rising cost of sales cut gross profit by ¥1.9 billion year on year to ¥250.0 billion.
• Selling, general and administrative expenses: These rose ¥9.4 billion from a year earlier to ¥244.4 billion, weighing on earnings.
• Tax burden: Pretax profit was just ¥600 million. A ¥5.2 billion income tax expense pushed the company to an interim loss.

The central takeaway is that higher sales failed to translate into profit, leaving LIXIL with an interim loss. The combined increase in cost of sales and SG&A outpaced revenue growth, and the operating margin fell to about 0.8% from about 1.6% a year earlier. Improving profitability will require cost control as well as sales growth.

Of LIXIL’s three businesses, Water Technology posted growth in both revenue and business profit, while business profit declined at Housing Technology and Living. Revenue was up 7.6% year on year at Water Technology, down 2.4% at Housing Technology and up 3.2% at Living.

Water Technology sells sanitaryware, faucets and bathrooms, among other products. Revenue increased year on year, as did business profit. It was the only segment to deliver growth in both measures, helping support overall earnings.

Housing Technology makes products including windows, doors and shutters. Revenue edged down, but business profit fell sharply. The much larger decline in profit than in sales puts margins in focus.

Living offers products including system kitchens, bathroom vanities and interior building materials. Revenue increased, but business profit declined, so sales growth did not translate into an earnings recovery. LIXIL’s earnings release did not provide detailed explanations for the individual factors behind the changes in each business.

Total assets stood at ¥1.8677 trillion at the end of September, down ¥16.2 billion from the end of the previous fiscal year. The ratio of equity attributable to owners of the parent fell to 33.9% from 35.3% at the previous year-end. Operating cash flow swung from an inflow a year earlier to an outflow.

The deterioration in operating cash flow reflected factors including an increase in inventories. Financing activities included funding through short-term borrowings and other sources, while cash on hand declined from the start of the period. LIXIL maintained its ¥45 interim dividend and ¥90 full-year dividend forecast. It announced no share buyback.

LIXIL left its FY2027 forecast unchanged, projecting revenue of ¥1.6 trillion, operating profit of ¥37.5 billion and net income attributable to owners of the parent of ¥12 billion. The company expects all three figures to exceed the previous fiscal year's results.

The earnings release made no changes to the forecast from the company's previous guidance. Revenue is about halfway to the full-year target, but profit progress remains low, leaving the extent of a second-half recovery in focus after the interim loss. LIXIL cautioned that actual results may differ from its outlook, which is not guaranteed.

LIXIL increased revenue in the first half but saw profit decline, while operating cash flow turned negative. A recovery in second-half earnings and effective working capital management will be important to meeting the full-year forecast.

• Lower margins: Higher cost of sales and SG&A meant revenue growth did not translate into higher operating profit. Continued cost increases could put the full-year earnings plan at risk.
• Housing Technology profitability: Business profit at the segment fell sharply from a year earlier. If the profit decline continues despite only a modest decrease in revenue, it could hinder a companywide earnings recovery.
• Weaker operating cash flow: Higher inventories and other factors turned first-half operating cash flow from a positive figure a year earlier to a negative one. Cash management and inventory trends warrant attention.
• External factors, including foreign exchange: Currency translation adjustments for foreign operations weighed on comprehensive income, shifting from a positive contribution a year earlier to a negative one. Given LIXIL’s overseas businesses, investors will also be watching the impact of exchange-rate movements on its financial position.