Morinaga & Co.,Ltd. Q2 FY2026 earnings call

Core Business Positioning & Long-Term Planning

• Current fiscal year is the midpoint for both the 2030 long-term plan (targets: ¥300 billion total sales, ≥12% operating margin) and the 2024 medium-term plan (targets: ¥246 billion total sales, ¥24.6 billion operating profit). Management prioritizes hitting the 2024 medium-term target first.
• Stagnant growth in high-margin priority segments (in Business, US Business) and low overseas sales share are the key structural challenges the firm is addressing.

Domestic Business Strategic Updates

• Confectionery (domestic): The candy shift strategy to prioritize higher-margin candy is on track: total domestic candy sales grew 108.5% YoY, driven by strong performance of Morinaga Ramune (131.4% YoY). Profitability improvement is on track, with a projected full-year operating margin of 7.8%, up 3.2 percentage points YoY, on track for the 2030 target of 10%.
• in Jelly: H1 performance was weaker than expected due to extreme heat reducing outdoor activity and intensified private label competition, with limited impact from summer marketing investments. For H2, management will launch an early exam-focused promotion paired with Morinaga Ramune, and for next fiscal year, the firm will pursue full brand value reconstruction and new demand creation moving away from pure price competition.
• Frozen Dessert: Has outperformed the overall market with an 8% 4-year CAGR, gaining 1.5 percentage points of market share to 12.3%. Key core brands have held up well after September 2025 price hikes, and new candidate products are in development. Profitability improvement remains a key priority.
• Mail Order: The segment is prioritizing profit over forced sales growth in FY2026, controlling advertising spending while testing new customer acquisition strategies for middle-aged consumers, with new customer acquisition efficiency improving in Q2.

US Business (HI-CHEW) Strategic Updates

• The market has become more competitive: major confectioners have shifted to candy amid high cocoa prices, expanding SKU counts and growing private label penetration, hitting HI-CHEW's performance in high-exposure CVS and MASS channels. Growth from new channels (dollar stores, movie theaters) and the growing FOOD channel has not yet offset these headwinds.
• Positive recent developments: A core product refresh and the first seasonal Halloween SKU (Mystery Flavor) are performing very well. Brand awareness rose 5 points to 62%, and purchase intent rose 2 points to 24%, with the strongest growth among Gen Z consumers. The new Chewbie brand mascot has already gained traction among young consumers.
• Planned H2 and future actions: Step up promotion in the FOOD channel, gradually expand seasonal product offerings ahead of the 2027 January opening of the second US factory, which will unlock large growth opportunities from seasonal events that represent 1.2x normal candy sales over 32 weeks annually. Management will optimize selling spending via the new US sales intelligence team, and implement a partial price hike in November 2025 to offset higher costs (including tariffs), with full profitability benefits starting next fiscal year.

For the first half (April-September 2025, 2nd quarter of FY2026):

1. Confectionery & Food Business: Grew sales year-over-year, leading overall company growth. Delivered significant operating profit growth, with an 8.2% operating margin that improved 3.6 percentage points year-over-year. For the full fiscal year, the segment is projected to grow sales to 103.6% of the prior year level, with further projected operating profit growth driven by price hikes, moderating raw material costs, and lower selling, general & administrative expenses.
2. Frozen Dessert Business: Grew sales year-over-year in H1, outperforming the overall market. Morinaga's frozen dessert sales grew 106.4% year-over-year vs the overall market's 101.3%, with key products like Choco Monaka Jumbo and The Crepe performing strongly. For the full fiscal year, the segment is projected to grow sales 107.4% year-over-year, with operating profit growth driven by sales gains, price hikes, and moderating raw material costs.
3. in Business (jelly drinks/functional products): Sales declined year-over-year in H1 due to intense competition from private labels, consumer thrift, and reduced consumer activity from extreme summer heat, with in jelly sales hitting 94.6% of the prior year level. For the full fiscal year, the segment is projected to deliver lower sales and lower operating profit due to reduced revenue and higher product costs from unfavorable sales mix.
4. US Business: Reported sales of 96.6% of the prior year level in yen terms, though in local currency terms sales grew slightly to 100.8% year-over-year, with a 98.7% out-of-fiscal-period comparable outturn. Operating profit declined sharply year-over-year due to higher sales & marketing investments and new tariff impacts. For the full fiscal year, full-year yen-based sales are projected to be flat with the prior year, with sharp projected operating profit decline driven by H1 higher sales costs and tariff impacts.
5. Mail Order Business: Sales declined year-over-year in H1 after an April 2025 price hike caused elevated subscriber churn, though new customer acquisition efficiency has improved recently. For the full fiscal year, the segment is projected to deliver lower sales but higher profit due to controlled advertising spending.

Total H1 company-wide sales: 121.8 billion yen (+2.5% YoY), operating profit 13.3 billion yen (-3.8% YoY), and net income 11.0 billion yen (record H1 high boosted by special gains from policy share sales).

• Full Fiscal Year 2026 (ending March 2026) Sales: Lowered the initial forecast from 240.0 billion yen to 236.0 billion yen. This represents a 3.1% year-over-year increase, which will be the fifth consecutive year of record high sales. The downward revision reflects the weaker-than-expected performance of in Business and US Business, and the impact of the September 2025 price hike in confectionery.
• Full Fiscal Year 2026 Operating Profit: Raised the initial forecast from 21.4 billion yen to 22.3 billion yen. This represents a 5.2% year-over-year increase, which will be a new all-time high. The upward revision reflects larger-than-expected benefits from price hikes, more moderate raw material cost increases than initially planned, improved selling, general & administrative expense efficiency, and overall cost reduction gains, which offset headwinds from lower sales and US business weakness.
• Full Fiscal Year 2026 Net Income: Forecast at 18.2 billion yen, 400 million yen above the initial forecast and 500 million yen above the prior year. EBITDA is forecast at 32.5 billion yen, which will also be a new record high.
• Second half operating profit is forecast to grow 1.5 billion yen year-over-year, as price hike and sales gains offset raw material cost increases, higher intangible investment (human resources, DX), and US tariff impacts.
• To hit the 2024 medium-term plan target of 24.6 billion yen operating profit next fiscal year, the firm needs an additional 2.3 billion yen in operating profit beyond the current FY2026 forecast, with growth required from the recovery of in Business and a return to growth in the US business.

• Intensified competition in core categories: in Business faces growing pressure from retailer private labels and new pharmaceutical competitors in the jelly drink market, which has depressed sales of the core standard in jelly line.
• US business headwinds: Intensified competition from major confectioners shifting to candy amid high cocoa prices, growing private label penetration, high competitive pressure in HI-CHEW's core CVS channel, SKU reductions in the MASS channel, new tariff costs added in Q2, and currently limited SKU scale to gain sufficient in-store shelf exposure.
• Raw material cost volatility: While cocoa and dairy price increases have moderated from initial forecasts, sustained high raw material costs remain a core pressure on profitability.
• Consumer thrift trends: Elevated consumer focus on saving has increased churn in mail order subscription business, reduced demand for premium priced branded products relative to lower-cost private labels.
• Slower progress on strategic portfolio transformation: Growth in priority segment sales share and overseas sales share has lagged plan, creating pressure to re-establish growth trajectories for in Business and US Business.
• The 2024 medium-term plan target requires additional growth beyond current FY2026 projections that has not yet been secured.

Q: What key drivers are needed to hit the medium-term 24.6 billion yen operating profit target next year, and how confident are you in the recovery of in jelly and US growth? / A: The large, established confectionery business will continue to contribute incremental profit growth from ongoing profitability improvements, which adds meaningful scale given its 80+ billion yen annual sales. The recovery of in jelly and return to US growth are still the critical priorities. in jelly has a 30-year track record of navigating slowdowns, with unique brand equity and product technology; the firm will rebuild its core standard line via brand repositioning and continue testing new product concepts to drive new demand. Management expects US strategic initiatives to deliver results starting in H2, with the second factory unlocking future expansion, and will scale up OEM production for HI-CHEW gummies to drive growth. The firm is also exploring expansion into new categories like Chargel and frozen desserts to hit long-term overseas sales targets.

Q: Why has HI-CHEW's rising brand awareness and purchase intent not translated to higher sales, what is the core issue? / A: The core problem is weaker in-store shelf presence compared to established competing brands. Even when consumers enjoy the product and intend to repurchase, it cannot translate to actual sales if the product is not widely available in-store. Management is actively addressing this gap, by expanding SKU counts and increasing distribution with support from the upcoming new factory.

Q: What is the scale and impact of the upcoming November US price hike, and what is the risk of volume declines? / A: The price hike only applies to select products, with core items in the high-pain CVS channel held price stable. The average price increase across the US business is approximately 6-7%, with full profitability benefits starting next fiscal year due to retail distribution lags. While CVS still represents a large share of sales, the share of the faster-growing FOOD channel has increased; management will strengthen marketing in FOOD to offset any potential volume decline from the price adjustment.

Q: What is Morinaga's view on recent rising consolidation in the global confectionery industry? / A: Management acknowledges the growing market attention on industry consolidation and confirms M&A is one strategic option to accelerate growth. For the foreseeable future, the firm will maintain its current stance and prioritize delivering on the existing 2030 and medium-term growth plan, but does not rule out any options over the long term based on the firm's position and external market conditions.