Makita Q2 FY2027: Tariff refunds help lift operating profit 23%

Makita's FY2027 first-half revenue rose 9.6% year on year to ¥414.7 billion. Operating profit increased 23.0% to ¥63.3 billion, while interim profit attributable to owners of the parent gained 23.5% to ¥47.9 billion. The operating margin improved to 15.3%, from 13.6% a year earlier.

• Revenue growth: Revenue was flat on a local-currency basis, but the yen's depreciation against other currencies lifted the yen-denominated total.
• Profit drivers: An improved cost-of-sales ratio, including refunds of U.S. tariffs, contributed to higher operating profit.
• Costs and earnings: Cost of sales increased year on year, while gross profit rose 19.1%. Selling, general and administrative expenses and other costs also increased, but operating profit grew faster.

A weaker yen and tariff refunds helped drive profit growth in the first half. Makita said revenue was flat in local-currency terms, so the increase should not be read as evidence of a sharp recovery in demand alone. Investors will be watching whether the company can sustain earnings through sales of higher-value products such as the XGT series and cost improvements if the currency tailwind fades.

External-customer revenue increased in North America and Asia. Operating profit fell year on year in Japan, Europe, Asia and Other, while North America rose from a low level a year earlier. The year-on-year comparisons below are based on the segment information in the earnings release.

Japan recorded higher revenue but lower operating profit. Europe also grew revenue, but profit declined as high interest rates weighed on subdued building and construction markets. North America posted gains in both revenue and operating profit, although the profit growth rate looks especially large because the year-earlier base was low.

Asia faced generally weak tool demand, with China's property downturn spreading to neighboring countries. Other includes Latin America, Oceania, the Middle East and Africa in the company's regional disclosures. Segment data are based on shipment origin and differ from regional sales data, which reflect sales in each market.

Makita left its FY2027 full-year forecast unchanged. The company expects costs to rise broadly, but said it will focus on developing higher-value businesses and new markets as it works to meet its initial forecasts.

The revenue forecast represents a 5.5% increase from the previous year, while operating profit is forecast to rise 5.1%. The company made no revisions and assumes full-year exchange rates of ¥155 to the U.S. dollar, ¥180 to the euro and ¥22.5 to the Chinese yuan.

The decision not to raise the forecast despite first-half profit growth suggests caution about rising costs, including raw materials and labor. To assess whether earnings growth can continue in the second half, investors will be watching currency movements, any recovery in building and construction demand, and sales of higher-value products.

Total assets at the end of the first half stood at ¥1.1921 trillion, up ¥10.9 billion from the previous fiscal year-end. The equity attributable to owners of the parent ratio was 84.2%. Cash flow from operating activities increased from a year earlier, as did cash and cash equivalents.

The interim dividend was ¥79 per share, up from ¥20 a year earlier. The year-end and full-year dividend forecasts remain undecided. Makita's basic policy is to maintain a consolidated payout ratio of at least 50%, with the board scheduled to decide the dividend amount in April 2027.

Makita spent ¥4.1 billion on share buybacks in the first half, down from ¥20.0 billion a year earlier. The company is returning capital through dividends and share repurchases while maintaining increased cash holdings and a high equity ratio. Investing cash flow also includes spending on acquisitions of subsidiaries and business transfers, in addition to purchases of fixed assets.

Research and development spending in the first half increased 13.1% year on year to ¥9.1 billion. Capital expenditure was below the year-earlier level, but the full-year plan is higher than the previous year's actual spending, reflecting plans to invest in research and development and production capacity.

• Research and development: First-half spending was ¥9.1 billion, up from ¥8.1 billion a year earlier. The full-year plan is ¥18.5 billion, above the previous year's actual ¥16.6 billion.
• Capital expenditure: First-half spending was ¥10.3 billion, below ¥11.2 billion a year earlier. The full-year plan is ¥30.0 billion, above the previous year's actual ¥21.5 billion.
• Depreciation and amortization: First-half spending was ¥12.7 billion, up from ¥12.3 billion a year earlier.

Makita is expanding its lineup of power tools and outdoor power equipment, with a focus on the high-power, high-durability 40Vmax lithium-ion XGT battery platform. The company sees cordless outdoor power equipment as a future growth pillar alongside power tools. Developing markets beyond construction and addressing decarbonization are also part of its growth investment strategy.

Makita cited geopolitical risks, persistently high energy prices and continued high interest rates as economic concerns. Although revenue and profit increased in the first half, neither a demand recovery nor favorable currency movements are assured going forward.

• Geopolitical risks: Heightened tensions, including in the Middle East, could weigh on economic activity and affect sales or logistics in some regions.
• High interest rates and construction demand: Continued weakness in building and housing-related demand in Japan, Europe, North America and elsewhere could hold back a recovery in power-tool sales.
• Foreign-exchange movements: Yen weakness against local currencies contributed to first-half revenue growth. A stronger yen could reduce the yen value of overseas sales and weigh on profit.
• Rising costs and supply chain: The company expects costs to rise broadly. Overseas production accounts for 92.9% of total output, making a production system that can respond flexibly to geopolitical shifts and sudden changes in demand a key challenge.
• Regional differences in demand: Regional sales in the Middle East and Africa fell 9.8% year on year. Sales strategies need to reflect differences in demand and market conditions across regions.