Earnings Call: Q2 2027

Oct 30, 2026

Summary

H1 sales and operating income rose on stronger industrial machinery demand, reforms, and yen weakness. The FY forecast was raised to JPY 1.05T sales and JPY 56B operating income, while automotive demand remains a key pressure point.

Good afternoon, and thank you for taking the time to join NSK's financial results presentation today. As outlined in the agenda, I will cover three topics: our first-half results, our full-year forecast, and progress of our initiatives to enhance corporate value over the medium to long term. On page four, we have the highlights of our first-half financial results. For the first half, sales and profits increased year-on-year. Performance benefited from a recovery in demand in the industrial machinery business, driven by AI-related investment, as well as continued progress in business reforms and profitability improvements. The weaker yen and the consolidation of the steering business also contributed positively to earnings. As a result, sales totaled JPY 520.4 billion, and operating income was JPY 30.1 billion, representing a year-on-year increase of JPY 108.1 billion in sales and JPY 12.4 billion in operating income. Of the JPY 108.1 billion increase in sales, JPY 73.5 billion is from the steering business. We are revising our full-year forecast upward to reflect our first-half performance and current demand trends in the industrial machinery business. We now project full-year sales of JPY 1.05 trillion and operating income of JPY 56 billion. Compared with our July forecast, this represents an increase of JPY 10 billion in sales and JPY 6 billion in operating income. Regarding shareholder returns, we will continue our policy of stable profit distribution with a dividend on equity, DOE, of 2.5% as the minimum guideline. Both the interim dividend of JPY 17 per share and the full-year dividend of JPY 34 per share remain unchanged. On page five, we provide a first-half summary with a detailed breakdown presented visually on the next page. Sales in the automotive business declined slightly. However, this was more than offset by higher sales in the industrial machinery business and the positive impact of the weaker yen, resulting in an increase in sales and profits year-on-year. Profit increased due to higher industrial machinery business sales, continued progress in business improvement initiatives, including the benefits of structural reforms, and the impact of the weaker yen. We also believe progress towards achieving our full-year targets remains on track. On page six, using the V chart, I will explain the factors behind change in operating income. Operating income increased by JPY 12.4 billion year-on-year, or JPY 13.5 billion when excluding the steering business. Breaking it down from the left, the weaker yen had a significant impact, contributing JPY 7.1 billion. Volume and product mix contributed JPY 5.4 billion. More specifically, the industrial machinery business saw a volume increase of approximately JPY 16 billion, while the automotive business experienced a volume decrease of approximately JPY 10 billion. The net effect of these changes, combined with product mix, resulted in a volume mix effect of JPY 5.4 billion. Profitability improvements as a whole, including structural reform effects, contributed JPY 2.7 billion. Here, we addressed the impacts of inflation and rising costs through profitability improvements, including portfolio transformation, sales price improvement, cost reductions, and productivity improvements. Regarding one-time costs, there was a JPY 1.3 billion difference in structural reform expenses between fiscal 2025 and fiscal 2026, plus a JPY 1.6 billion difference in integration-related expenses incurred this period related to the business integration with NTN. As for the steering business, during the same period last fiscal year, there was a one-time gain of JPY 2.6 billion associated with consolidation. Absent the one-time gain, this period operating income in the steering business decreased by JPY 1.2 billion. Next, on pages seven and eight, we have the breakdowns by business segment. First, on page seven, we have the industrial machinery business. First-half sales totaled JPY 214.5 billion, driven by expanding demand in the semiconductor and machine tool sectors. Sales increased JPY 33.7 billion year-on-year, equivalent to 10% growth, excluding foreign exchange effects. Operating income was JPY 18.5 billion, an increase of JPY 13.6 billion year-on-year, with the operating margin recovering to 8.6%. Breaking the 8.6% operating margin down by product segment, it was 8% for industrial machinery bearings and 11% for precision machinery and parts. With further sales growth expected in the second half, we will continue efforts to improve profitability. Page eight covers the automotive business. First-half sales totaled JPY 201.1 billion. While the sales figure is flat year-on-year, foreign exchange effects amounted to approximately JPY 11.5 billion, and excluding these effects, sales decreased by 5.8% year-on-year. Sales expansion of strategic products, including ball screws for electric brakes, progressed in line with our plan. However, weaker underlying demand in Europe and China led to the overall sales decline. Operating income was JPY 9.1 billion. Despite a decline in sales of approximately JPY 10 billion, profits improved slightly by JPY 0.3 billion, supported by foreign exchange effects and business improvement initiatives. We intend to further build on these improvement activities in the second half. Page nine shows sales by customer region and business segment, comparing the first-half results for fiscal 2024, 2025, and 2026. For Europe, sales remained sluggish in both automotive and industrial machinery. For China, industrial machinery sales growth remained exceptionally strong, particularly in the machine tool sector. For the Americas, sales continued to increase independent of the effects of foreign exchange and tariff refunds. For other Asia, results varied by region. Automotive sales increased in India, but decreased in Asia Oceania. India also saw sales growth in the industrial machinery business. Overall, the region posted net growth. For Japan, automotive demand remained somewhat weak, while industrial machinery continued to perform solidly. Next, I will cover the full-year forecast for the fiscal year ending March 2027. On page 11, I would like to briefly review the assumptions underlying our full-year forecast. First, regarding exchange rates, although there have been some fluctuations in the dollar value of the yen, we are maintaining our exchange rate assumption of JPY 155 to the US dollar, same as in the revised forecast with the first quarter results in July. The same for the Chinese yuan, which remains the same at JPY 22.5 to the yuan. Only for the euro, we have factored in the impact of a slightly weaker euro and adjusted the rate assumption to JPY 175. Regarding the business environment, to reiterate, we expect the industrial machinery business to remain robust in the second half. Although there were some concerns, we anticipate that strong sales to China will continue through the period. For automotive, we project that global vehicle production volume will remain flat. Regarding the situation in the Middle East, conditions remain largely consistent with the assumptions in the first quarter. Regarding U.S. tariffs, we will manage the impact, specifically the increase or decrease in costs resulting from tariffs, so that it is net zero relative to sales price improvement. As for structural reforms, as outlined in our plan, initiatives in Japan will begin in the second half of the fiscal year, so structural reform expenses are slightly skewed towards the second half. As mentioned previously, regarding business integration with NTN, we have recorded integration costs of approximately JPY 5 billion for the full fiscal year. On page 12, we have the revised forecast. We have revised our full-year forecast upward to reflect the first-half results and demand trends in the industrial machinery business, as well as changes in the assumptions detailed on the previous page. In the revised forecast, sales are projected at JPY 1.05 trillion, operating income at JPY 56 billion, or 5.3%. We anticipate net income attributable to owners of the parent of JPY 34 billion. Year on year, this represents an increase of sales of JPY 138.4 billion, an increase in operating income of JPY 17.2 billion, and an increase in net income of JPY 11.1 billion. Looking at page 13, I will explain the factors behind change in operating income from the fiscal 2025 result to the new fiscal 2026 full-year forecast. As noted at the top of the page, operating income has been revised up by JPY 6 billion, up from JPY 50 billion to JPY 56 billion. To break the JPY 6 billion increase down, JPY 4 billion is attributable to volume and product mix, JPY 1 billion to the foreign exchange effects, and JPY 1 billion to the steering business. For comparison, the new full-year forecast operating income of JPY 56 billion exceeds the fiscal 2025 result by JPY 17.2 billion, or JPY 18.9 billion excluding the steering business. From the left, the breakdown is JPY 4.5 billion from foreign exchange effects and JPY 14 billion from volume and product mix. Regarding the volume component of volume and mix, sales in the industrial machinery business increased by approximately JPY 40 billion year on year, while sales in the automotive business decreased by about JPY 10 billion-JPY 12 billion. Profitability initiatives, including structural reforms, productivity improvements, and measures to offset inflation and higher costs, are expected to contribute JPY 5.5 billion, in line with the original plan. One-time items include approximately JPY 5.1 billion of business integration-related costs, while the year-on-year difference in structural reform costs is minimal at around JPY 0.1 billion. For the steering business, our full-year forecast is JPY 6 billion, representing a year-on-year operating income decrease of JPY 1.7 billion. Finally, as shown in the rightmost column, taking all these factors into account, we have revised our operating income forecast upward to JPY 56 billion. On page 14, we have the forecast breakdown by business segment. This table on the right side shows demand trends by sector. We expect the robust growth in the robotics sector to continue into the second half of the fiscal year, and we anticipate that the machine tool sector will also remain strong. Regarding the semiconductor sector, we believe that the upward trend in demand will continue. Accordingly, we expect continued demand growth for precision bearings and precision machinery and parts through the second half. While aftermarket demand remains mixed by region, market conditions generally remain cautious. Taking these factors into account, as shown in the figures on the left, for the industrial machinery business, first-half sales totaled JPY 214.5 billion, and the second-half forecast is JPY 221.5 billion. We expect second-half sales to exceed the first-half result. Operating income is forecast at approximately JPY 19 billion, broadly in line with the first-half profitability. However, this figure includes roughly JPY 5 billion of structural reform expenses. Excluding these one-time costs, operating income would exceed JPY 24 billion, corresponding to an operating margin of 11% or higher. Automotive production volumes are expected to remain generally flat. Sales are forecast at JPY 403 billion. The second-half sales forecast is basically flat from the first-half result. While operating income appears to decline slightly from the first half to the second half, this figure also includes the impact of one-time expenses. Excluding these one-time expenses, we aim to maintain a 5% operating margin and continue making improvements leading into the next fiscal year. On page 16, regarding our medium to long-term initiatives, we have set an operating income target of JPY 75 billion for 2028. A key component of this objective is achieving JPY 27 billion of improvements not reliant on volume, and I would like to review this target. From fiscal 2026 through fiscal 2028, we expect approximately JPY 10 billion from volume-independent profitability improvement measures. Specifically, this refers to improving sales prices, reducing costs, and enhancing productivity at the plant level. Additionally, in indirect departments, we will aim for structural improvements focused on business process transformation. As previously announced, we have entered into a partnership agreement with Accenture. By leveraging AI and digital technologies, we will further advance operations across both manufacturing sites and corporate functions, thereby accelerating business transformation. European structural reform initiatives are expected to be substantially completed within this fiscal year, with benefits being realized through fiscal 2027. In Japan, reforms will be implemented over approximately two years, beginning in the second half of fiscal 2026 and continuing through fiscal 2028. Although these efforts will require upfront investment, we are targeting approximately JPY 12 billion of benefits by fiscal 2028. Next, looking at portfolio reform on the right, this involves expanding sales in the industrial machinery business for high-margin precision bearings and precision machinery products, as well as aftermarket sales expansion. In the automotive business, we are expanding sales of ball screws for electric brakes, high-rigidity hubs for heavy-duty vehicles, and e-axle products. All of our focus area products are products that differentiate us from the competition. Demand for precision machinery and precision products has benefited from favorable market conditions and continues to expand. In the aftermarket business, Europe and the Middle East remain sluggish, but expansion efforts in India and North America are beginning to deliver results. In the automotive business, the roadmap toward fiscal 2028 has largely been established, and we are currently building production capabilities across China, Japan, North America, and India. Finally, on page 17, I would like to briefly discuss our longer-term vision, NSK Vision 2036, beyond the current Mid-Term Management Plan. We aim to expand our portfolio through three strategic initiatives: the expansion of our robotics business, the expansion of our actuator system products, and the expansion of our product lifecycle management, or PLM, offering, which involves expanding our solution services and aftermarket business. In robotics, following our investment in RT Corporation, we are accelerating collaboration with Delta and ATOM, particularly in the validation of actuator products and data collection through our data factory initiative. For actuator products, while the slide highlights the electro-hydraulic booster, we will continue introducing new products, including spindle units for machine tools. Regarding PLM expansion, we see significant opportunities in emerging applications such as data centers and intend to actively pursue these opportunities. Before closing, I would like to briefly comment on the progress of the planned business integration with NTN announced in May. While I am not in a position to comment on specific details at this stage, I would like to report that active and constructive discussions between the two companies are progressing steadily towards the execution of a definitive agreement.