Unicharm’s Earnings Call: Mixed Results Amid Asian Challenges

Unicharm Corporation ((JP:8113)) has held its Q2 earnings call. Read on for the main highlights of the call.

Unicharm Corporation’s recent earnings call painted a mixed picture, reflecting both achievements and challenges. While the company reported notable successes in Japan, North America, and the Middle East, it faced significant hurdles in the Asian market, particularly in China. This dual narrative led to a tempered sentiment, with positive signs for future recovery overshadowed by existing difficulties, including a second downward revision of the forecast.

Japanese Business Achievements

Unicharm’s operations in Japan reached new heights, with a 4.1% increase in net sales and a 2.9% rise in core operating income, marking the highest results ever recorded. This success was attributed to strategic value shift initiatives, the launch of new products, and a significant boost in the sales mix of wellness care and pet care products.

North America and Middle East Growth

The company reported a 2.3% increase in net sales and a 12.7% rise in core operating income in North America and the Middle East. The core operating margin improved to 14.6%, driven by robust performance in the pet care sector in North America and heightened demand for baby and feminine care products in the Middle East.

Record Dividend Increase

Unicharm announced a plan to increase its annual dividend by JPY3.3 per share to JPY18 per share, marking the 24th consecutive year of dividend growth. This decision underscores the company’s commitment to returning value to its shareholders.

Insurance Income and Tax Benefits

Interim income attributable to the parent company rose due to a JPY5.3 billion insurance income receipt in India and the strategic use of tax loss carryforwards related to this income, providing a financial cushion amid other challenges.

Strategic Investments for Future Growth

The company is making aggressive investments in strategic marketing and sales promotion, particularly focusing on the online market channel. These efforts are expected to yield positive results from the third quarter onward, indicating a proactive approach to future growth.

Sales and Core Operating Income Decline

Unicharm’s consolidated sales dropped to ¥464.2 billion, a 4.8% decrease, with core operating income falling by 22% to JPY57 billion. This decline was largely due to a high comparison base from the previous fiscal year, which saw record-high profits.

Challenges in the Asian Market

The Asian market posed significant challenges, with net sales declining by 14.5% and core operating income plummeting by 69.4%. The primary issues were operations in China, Indonesia, and Thailand, exacerbated by reputational damage and stiff competition from local companies.

Reputational Damage in China

Sales and profits in China were severely impacted by damaging rumors about feminine care products, leading to a substantial decrease in sales and profit margins, highlighting the vulnerability of brand reputation.

Rising Costs and Expenses

Increased SG&A expenses, including logistics, sales promotion, and labor costs, grew by 1.9 percentage points from sales, significantly impacting core operating income and underscoring the need for cost management.

Second Downward Forecast Revision

Unicharm revised its earnings forecast downward for the fiscal year ending December 31, 2025, due to slower recovery in Asia and temporary impacts in China. Despite these challenges, the company remains optimistic about its performance in Japan, North America, and the Middle East.

Forward-Looking Guidance

Despite the challenges faced, Unicharm remains committed to its strategic investments and plans to increase its annual dividend while repurchasing additional treasury stock. The company aims for a total return ratio of 50% or more, demonstrating confidence in its long-term growth strategy.

In conclusion, Unicharm Corporation’s earnings call highlighted a complex landscape of achievements and challenges. While the company has made significant strides in Japan, North America, and the Middle East, the Asian market presents ongoing difficulties. The overall sentiment is cautious optimism, with strategic investments and a focus on shareholder returns offering a path forward.