Morinaga & Co.,Ltd. Q4 FY2026 earnings call

• Company Overview & Core Strengths

  • Founded in 1899, the company has expanded from Western confectionery manufacturing into confectionery, food, ice cream, and health/wellness categories, holding leading market share in multiple categories in Japan.
  • Core strengths include: strong 126-year brand recognition and trust in Japan with multiple multi-generational long hit products; accumulated core technologies including soft candy technology, frozen confectionery technology, and jelly beverage technology, plus expertise in low-cost, safe mass production of innovative products; flexible, collaborative corporate culture that has successfully navigated past crises.
  • Long-term vision: Transform into a wellness company that supports wellness lifestyles for all generations globally by providing health benefits for mind, body, and environment to customers, employees, and society.

• Global Growth Strategy: 6 CORES

  • The company has defined 6 core priority initiatives to reach its 2031 March fiscal year overseas sales target, collectively called 6 CORES, covering HI-CHEW expansion, jelly beverages, frozen desserts, wellness, and Made in Japan positioning. This framework is a company-wide common priority that aligns cross-departmental collaboration to speed up execution.
  • HI-CHEW Global Expansion: HI-CHEW is the core global brand, currently sold in over 30 countries, ranked 7th globally in the soft candy/gummy category as of 2024, with a target to reach top 5 by 2030.
    • The U.S. is the core existing market: Currently about half of U.S.-bound HI-CHEW is produced locally, with the other half imported from Taiwan and China. A second U.S. factory will start operations in 2027 (with potential for earlier launch), which will double domestic U.S. production capacity, free up Taiwanese manufacturing capacity to supply Europe and Oceania, and create a globally optimized supply chain. Recent U.S. growth has plateaued due to intensified competition from major confectioners' gummy product lines and emerging new brands, so the company is planning new products and promotions from 2025 to 2026 to strengthen the brand.
    • Europe and Oceania are positioned as the second growth pole: Steady market entry is ongoing, with established presence in the U.K. and New Zealand, recent entry into France, and ongoing expansion in Australia. Marketing leverages the positive consumer perception of Japanese brands, using Japanese katakana branding and Mt. Fuji markers to highlight the brand's origin, with country-specific tailored strategies based on local market stage.
    • Brand expansion: In addition to the core authentic HI-CHEW line, the company is expanding into adjacent categories like gummies under the HI-CHEW brand to increase customer touchpoints and mindshare.
  • Jelly Beverage Global Expansion: inゼRI created the jelly beverage category in Japan in 1994, holding over 30% market share as the clear category leader. It launched in Taiwan in 1999 and is now well-established with continuously growing sales, with product lineups tailored to local demand. It launched in the U.S. in 2022 as Chargel, currently in the early market development stage. The company recently repositioned Chargel from sports energy supplement to everyday snack to better align with U.S. consumer preferences, and is continuing efforts to achieve market breakthrough.
  • Frozen Dessert Global Expansion: The global ice cream market is much larger than the candy market, with particularly large markets in the U.S. and Western Europe. Test sales of HI-CHEW POP ice cream bars in the U.S. delivered strong results, and the product is already available in Australia, New Zealand, and Taiwan. The company recently announced the acquisition of a stake in My/Mochi, the leading mochi ice cream brand in the U.S., which recorded 60 million USD (~9.3-9.4 billion yen) in sales in the prior fiscal year.
    • Rationale for the acquisition: to gain an established U.S. frozen dessert value chain, including existing national distribution and local market expertise, to enable faster full-scale entry into the U.S. frozen dessert market.
    • Expected synergies: The combination of Morinaga's core frozen confectionery R&D technology, the established HI-CHEW brand in the U.S., and My/Mochi's manufacturing expertise, local know-how, and distribution will enable growth for both Morinaga's U.S. frozen dessert entry and My/Mochi's product development, driving overall U.S. business growth. The company plans to use My/Mochi's distribution to scale up HI-CHEW POP distribution long-term, and is already exploring new co-developed products.
  • Supply Chain Strategy: The company is now actively using OEM for appropriate products, moving from a historically cautious approach, to build an optimal supply chain that enables faster market entry globally to hit growth targets.

• Capital Allocation & Shareholder Return

  • The company has achieved 10 consecutive years of dividend increases through the 2025 March fiscal year, and plans a further 5 yen per share increase to 65 yen per share for the 2026 March fiscal year. Starting in the 2026 March fiscal year, the company will also introduce an interim dividend to enhance shareholder return.
  • Treasury stock purchases are implemented flexibly, considering total return payout and funding needs for growth investment.
  • The company maintains a policy of balancing growth investment to drive long-term enterprise value growth with stable, continuous shareholder return, and this policy has not changed following the My/Mochi acquisition.

The company divides its business into five segments for the 2026 March fiscal year forecast: 1. Confectionery and Food Business: This is the company's base cash-generating foundation segment. It is the largest segment by size, and ongoing profitability improvement has grown its profit contribution for the 2026 March fiscal year. Within this base segment, the candy category is prioritized for growth due to its strong profitability and expected market growth. 2. in Business (jelly beverage): The flagship product in this segment is inゼリー, which holds over 30% market share in Japan and is the top-ranked product in the category. It has an established growing presence in Taiwan, and is in the early market development stage in the U.S. under the Chargel brand. 3. Frozen Dessert Business: This is a core priority growth segment, leveraging the company's existing strength in frozen confectionery technology in Japan. 4. Mail Order Business: Classified as a priority growth segment with expected growth and profitability. 5. U.S. Business: This is the company's core overseas growth segment. As of the 2026 March fiscal year forecast, overseas sales have grown to nearly 3x the 11.7 billion yen (1.17 billion yen) level recorded in the 2021 March fiscal year, driven primarily by HI-CHEW. HI-CHEW currently accounts for the vast majority of the company's overseas sales.

• Overall financial performance: The 2026 March fiscal year is expected to achieve record high revenue and operating profit, following a V-shaped recovery from the COVID-19 pandemic and raw material price shock that caused a temporary sharp profit decline.
  • Strategic financial targets: ROE hit 13.5% in the 2025 March fiscal year (exceeding the 10% target), with a maintained target of 15% or higher ROE by the 2031 March fiscal year. ROIC is used as a core management metric to improve growth and capital profitability.
  • Overseas sales target: The 2031 March fiscal year overseas sales target has been raised to 75 billion yen (7.5 billion yen), representing 25% of total company sales, up from the prior target. As of 2025, the current overseas sales ratio is approximately 13%, so significant growth is targeted. The 2026-2027 March fiscal year targets are set at a high level relative to the 2026 March fiscal year forecast, reflecting the company's ambition to accelerate growth after the current plateau.
  • 2024 Mid-Term Management Plan position: The plan is the second stage of the 2030 Long-Term Management Plan, in its second year. The current phase focuses on growing priority segments and concretizing new growth initiatives to build a clear path to hit 2030 long-term targets. The company is also actively exploring inorganic growth opportunities focused on priority segments.

• Raw material price volatility: Sustained high cocoa prices have been the largest driver of ongoing raw material cost inflation, and remain a key headwind for the 2026 March fiscal year. While global cocoa prices have begun to decline, there is a time lag before lower prices are reflected in cost of goods sold. While cost inflation could turn positive year-over-year in the 2027 March fiscal year, high cocoa prices are expected to remain sticky due to ongoing fundamental supply issues, so the company is planning for continued elevated prices.
  • Intensified U.S. market competition: Sustained inflation has weakened U.S. consumer sentiment, and major U.S. confectioners have shifted focus from chocolate to candy products amid high cocoa prices, leading to intensified competition that has contributed to the recent plateau in HI-CHEW U.S. growth.
  • U.S. supply constraints: Rapid past growth of HI-CHEW in the U.S. has stretched existing supply capacity to its limit, so capacity constraints will continue until the second U.S. factory comes online in 2027, which explains the slower projected growth for 2025-2026. While the factory may open slightly earlier than planned, constraints will remain in place until launch.
  • Uncertainty post-acquisition: Post-merger integration (PMI) for My/Mochi is still in the planning stage, and synergy realization will take time to materialize.

Q: What are the main drivers of continued raw material price inflation starting from the 2023 March fiscal year, and what is the current situation?

A: The main impact comes from high prices for key raw materials including cocoa, oils and fats, and dairy ingredients. Continued high cocoa prices are the largest ongoing driver, and will remain the main factor for the 2026 March fiscal year. While cocoa futures have started to fall, there is a time lag for lower prices to reach the income statement, so costs will not fall immediately. While prices could improve year-over-year in the 2027 March fiscal year, fundamental issues support continued high prices, so the company is planning for some degree of continued elevated prices.

Q: What drove the rapid growth in overseas sales from 11.7 billion yen (1.17 billion yen) in the 2021 March fiscal year to nearly 3x that level by the 2026 March fiscal year forecast? Was it persistent expansion of distribution and growing awareness in the U.S., or other factors?

A: The growth came from persistent sales efforts that led to HI-CHEW being placed in candy displays across the U.S., growing consumer awareness, and tailwinds from increased at-home demand during the COVID-19 pandemic. Additionally, the company implemented annual price increases from the 2021 March fiscal year to the 2023 March fiscal year in response to U.S. inflation, but still managed to grow sales volume, which drove the strong overall growth.

Q: What is the outlook for HI-CHEW POP and the development of the U.S. ice cream market following the My/Mochi acquisition? What should investors expect?

A: Last year, the company ran limited chain-exclusive test sales of HI-CHEW POP multi-pack ice cream bars, which delivered very strong sales and positive traction. The company will continue to roll out HI-CHEW POP, but it will remain limited in scope in the near term because it is exported from Japan. Long-term, the company plans to use My/Mochi's distribution network, and potentially U.S. OEM production, to enable full-scale nationwide rollout. Management teams from both companies have already discussed potential for new co-developed products that leverage both firms' strengths, and the company will promote collaboration between Morinaga USA marketers and My/Mochi. While all initiatives are still early, the company will work to deliver larger synergies over the medium to long term.

Q: What is the plan for PMI after the My/Mochi acquisition, and what growth do you expect?

A: PMI is still upcoming, so no clear detailed answer can be provided yet. The company plans to respect and retain My/Mochi's existing management team, while adding Morinaga representatives to the management team and putting in place governance and support frameworks to advance steady integration. Morinaga's management team including the CEO has already conducted multiple in-person meetings with My/Mochi management starting during the due diligence phase.

Q: The acquisition valuation appears somewhat elevated. How did the company approach the purchase price decision?

A: The company recognizes the market perception that the valuation is somewhat high. Morinaga values that My/Mochi generates positive EBITDA and produces stable cash flow, and expects that synergy realization will further strengthen its earnings power. The company judges that the investment payback is sufficiently feasible at the current purchase price.

Q: With increased investment for the My/Mochi acquisition and production capacity expansion, has the company's shareholder return policy changed?

A: There is no change to the company's basic stance on financial strategy and shareholder return policy. The company remains committed to balancing medium to long-term enterprise value growth through growth investment with stable, continuous shareholder return, even after the My/Mochi acquisition.

Q: Why is the 2025-2026 March fiscal year overseas sales outlook slower than past growth? Is it due to capacity constraints, intensified competition from high cocoa prices, or inflation concerns?

A: There are both external environmental factors and internal factors. External factors include poor U.S. market conditions from prolonged inflation that has weakened consumer sentiment, plus intensified competition: major U.S. confectioners have shifted focus from chocolate to candy amid high cocoa prices, increasing competitive pressure. Internal factors are supply capacity constraints: after rapid HI-CHEW growth, existing supply capacity is at its limit, so the company is working around the current capacity cap. The second U.S. factory is under construction for a January 2027 launch (with potential for earlier opening), so capacity constraints will remain until then, leading to a current plateau period over the next two years.

Q: What measures is the company taking to keep selling prices as low as possible amid cost increases?

A: The company is pursuing raw material substitution efforts, with careful testing to avoid reducing product quality, and the results of these efforts are being applied to reduce costs.

Q: Beyond revenue and profit, what non-financial metrics should investors watch to judge progress on the transformation to a wellness company?

A: Morinaga defines wellness as enabling a rich, fulfilling life based on a healthy mind, body, and environment. The company has set non-financial outcome metrics including: share of revenue from products that provide health value, positive response rate for corporate image, employee engagement, and ratio of sustainably sourced raw materials. Details are available in the company's integrated report.

Q: What criteria does management use to draw the line between growth businesses and protected base businesses as it shifts its portfolio?

A: Under the 2030 management plan, business with expected growth and profitability are defined as priority segments, with evaluation based on medium to long-term potential. Even within the base confectionery and food business segment, the candy category has sufficient expected growth and profitability, so it is classified as an area for active growth.

Q: Which business in the base segment is the company focusing on most?

A: Within the confectionery and food business, the company is focusing specifically on the candy category. It has high profitability and expected market growth, so the company is advancing active initiatives for the category.

Q: What is the long-term vision: will the company remain primarily a candy company centered on HI-CHEW for global growth, or expand to a global food company with multiple categories?

A: HI-CHEW will definitely remain the core, but as laid out in the 6 CORES strategy, the company aims to accelerate global expansion across additional categories including jelly beverages and ice cream.

Q: How does the company evaluate progress in Europe and Oceania, the second growth pole, and what KPIs does it use to judge when the business has positive traction?

A: The company evaluates progress across multiple metrics, including consumer awareness and purchase intent from consumer research, in-store distribution rate, and inventory turnover. It uses ongoing analysis of these metrics to identify the right time to accelerate investment.

Q: Is production hygiene and quality management consistent across all factories in China, the U.S., and Japan?

A: The company works to improve quality assurance and safety management across all manufacturing facilities, including overseas locations. Domestic factories in Japan hold FSSC 22000 or JFS-B certification, while overseas factories hold FSSC 22000 or SQF Code Edition 9 international certification, maintaining consistent high standards across all locations.

Q: The company emphasizes PBR and ROE-focused management. How does the company view the current stock price valuation, and which metric needs to improve to change market perception?

A: The recent closing PBR was ~1.6x, and it has remained around that level. PBR is a function of ROE and PER. ROE is already at a high level, but PER has been trending downward, which the company recognizes as a key issue. The current overseas sales ratio is ~13%, so significant growth is needed to reach the 25% 2030 target. The company recognizes that investor expectations are focused on growth in overseas business led by the U.S., so it will steadily execute its global strategy to drive PER improvement.

Q: Will you introduce a new long-term shareholder benefit for holders of 5+ years?

A: Thank you for the feedback, the company will consider it for future changes.

Q: Is the shareholder benefit product content fixed every year?

A: The company rotates a portion of the product content each year. It selects representative Morinaga products, and tries to cover a wide range of categories including both newer products and long-standing fan favorites.