Hitachi Construction Machinery Co.,Ltd. Q2 FY2026 earnings call

• Corporate Rebranding Announcement:

  • The company will change its corporate name to LANDCROS (LANDCROS Co., Ltd.) effective April 1, 2027. The new brand name derives from "LAND" (representing the vision of prosperous land and cities for the future) and "CROS" (a coined word representing the value of providing trusted open solutions).
  • The rebranding follows Hitachi Ltd.'s 2022 divestment of most of its stake, marking the completion of the company's second founding and a new start for the next 100 years. The new brand identity is fully independent from Hitachi Ltd., with 17 months planned for full brand penetration across all stakeholder touchpoints including machinery, marketing, and internal systems.

• H1 Operational Performance:

  • Reported revenue fell slightly year-over-year due to yen appreciation, but rose in local currency terms driven by solid performance in Europe, Asia, and North America independent business. Mining maintenance demand showed improvement in some regions, and overall performance recovered compared to Q1.
  • Adjusted operating profit decreased due to yen appreciation and weaker product/regional mix, but net profit increased due to transitory other operating income and improved financial results. Transitory H1 income includes insurance payouts for past factory/hurricane damage and warranty subsidies from engine suppliers.

• Balance Sheet and Cash Flow:

  • Total assets stood at 1.7792 trillion yen, down 11.8 billion yen from fiscal year-end, driven by reduced operating receivables. Inventory increased by 18.8 billion yen, and net interest-bearing debt was largely flat at 389.7 billion yen, with a net D/E ratio of 0.47.
  • Operating cash flow was positive 66.6 billion yen, and free cash flow reached 44.6 billion yen, maintaining solid liquidity.

1. Mining Segment: 2025 H1 cumulative revenue was 126.9 billion yen, a 15% year-over-year decrease; it accounts for 19% of total consolidated revenue, down 4 percentage points year-over-year. Excluding forex impact, revenue decreased 11% in local currency. Full-year 2025 guidance is 273.7 billion yen, a 4% year-over-year decrease, accounting for 21% of total revenue. 2. Value Chain Segment: 2025 H1 cumulative revenue was 287.2 billion yen, a 1% year-over-year decrease; it accounts for 44% of total consolidated revenue, flat year-over-year. Excluding forex impact, revenue increased in local currency. Full-year 2025 guidance is 620.0 billion yen, a 4% year-over-year increase, accounting for 47% of total revenue. 3. Overall Consolidated: 2025 H1 cumulative revenue was 654.1 billion yen, a 2% year-over-year decrease; adjusted operating profit was 60.1 billion yen, a 16% year-over-year decrease; profit attributable to parent shareholders was 37.8 billion yen, a 19% year-over-year increase. Overseas revenue accounted for 85% of total revenue, flat year-over-year.

• Management upward revised full-year 2025 (fiscal year ending March 2026) guidance: sales revenue to 1.32 trillion yen, adjusted operating profit to 132.0 billion yen, and net profit attributable to parent shareholders to 74.0 billion yen, after incorporating expanded US steel/aluminum tariff costs and Q2 recovery performance. The annual dividend forecast remains unchanged at 175 yen per share.
• The full-year 2025 forecast expects 10% adjusted operating margin. In regional forecast revisions, Japan, Europe, and North America independent business were revised upward, while Oceania and China were revised downward. The full-year overseas revenue ratio is projected to stay at 84%, flat year-over-year.
• Hydraulic excavator global demand forecast is maintained at 198,000 units, a 10% year-over-year decrease, with persistent uncertainty centered on North America. Mining equipment demand forecast is maintained at a 10-15% year-over-year decrease, as iron ore and coal prices are expected to stabilize around $100 per ton with no sharp recovery expected.
• For H2 2025, the assumed forex rate is set to 142 JPY/USD (yen higher than previous forecast) and 166 JPY/EUR (yen lower than previous forecast), with rates for CNY and AUD unchanged.
• Value Chain full-year revenue guidance is maintained overall: after a downward revision to Specialized Parts & Services, upward revisions to parts service and rental offset the change, and the company still targets a new all-time high full-year revenue.

• US Tariff Risk: Expanded US tariffs on steel and aluminum now cover finished construction machinery, bringing total projected annual adjusted operating profit cost increases to 10.3 billion yen, up 1.7 billion yen from the previous estimate. The full impact of tariffs will not be felt until 2026, as existing low-tariff inventory is gradually sold through, and broader market demand impact is still uncertain. While the company has implemented sequential price increases that have been accepted by the market, generating 4.0 billion yen in projected offsetting gains, the full impact of price passthrough remains to be seen.
• Mining Sector Uncertainty: Maintenance demand postponement persists in mining, especially in coal/iron ore producing regions like Australia, Indonesia, and China, driven by low commodity prices and market uncertainty. While overall equipment operating hours have not fallen, the postponement has pressured revenue and profit for specialized parts and services. Performance varies greatly by region: hard rock mining (copper/gold) remains solid in Central Asia, Latin America, and Africa, while coal-focused regions face continued weakness.
• General Market Uncertainty: Q2 North America independent business upside included transitory rush demand ahead of further tariff implementation, so management does not view this as a sustained market recovery. Global construction equipment demand is still expected to decline year-over-year in 2025, with persistent macro uncertainty. Europe shows early signs of market bottoming but faces lingering geopolitical and tariff risks.

Q: Why is the full-year upward revision only modest despite Q2 upside, and what key uncertainties does management prioritize? / A: Q2 results were slightly above forecast driven by upside in Japan, Europe, and North America independent business. North America's upside included transitory rush demand from customers buying ahead of expected tariff-related price increases, so management does not judge the market has turned upward yet. Persistent uncertainties include continued mining maintenance postponement and the additional impact of expanded US tariffs, so management kept the upward revision conservative to account for these downside risks.

Q: Can you confirm if tariff-related price increase benefits are included in the current guidance, and are price hikes being accepted by the market? / A: All 4.0 billion yen in projected benefit from the most recent October price hike is already included in the current sales price change projection. The company implements sequential, gradual price increases factoring in dealer, customer, and competitor pricing, and these hikes have so far been accepted by the market. Management notes there may still be room for additional price increases if needed, and will continue to adjust based on market conditions.

Q: Why has the profit forecast for Specialized Parts & Services been cut sharply, while construction machinery profit was raised? / A: The downward revision to Specialized Parts & Services is primarily driven by weaker-than-expected performance at acquired businesses H-E Parts and Bradken. Mining customers have postponed maintenance, which disproportionately hurts the third-party rebuilt parts business that H-E Parts operates, especially in Latin America where competition is fierce and market conditions are very tight. This has pushed the segment's profit lower along with lower margins. For construction machinery, overall performance has improved from Q1 to Q2, but the large volume decline in OEM supply to Deere & Company (which had strong margin improvements after a contract revision) remains a drag on overall profit, and upside from other regions was enough to offset this drag for the upward revision.

Q: When will the full impact of US tariffs hit, and why does management expect larger impacts in 2026? / A: Currently, dealers and the company still hold inventory that was purchased before the latest round of tariff expansions, so these lower-cost (lower tariff) units are still being sold to the market first. The sequence of sales will go from pre-tariff inventory, to inventory subject to the original 15% tariff, and finally to units subject to the new expanded 50% steel/aluminum tariff. This means the full impact of higher tariffs on the market and the company's costs will not appear until 2026, as higher-cost units reach end customers. This applies to the company as well as all other US market participants, so the full market demand impact will only become clear next year.