Hitachi Construction Machinery Co.,Ltd. Q4 FY2026 earnings call

New Medium-Term Business Plan "LANDCROS 2028" & Strategic Direction

• The company will rename to LANDCROS Corporation in April 2027, positioning the brand and name change as a starting point for transformation, with the long-term target of becoming a top 3 industry player by 2030.
• The plan allocates 500 billion yen in total growth investment over the 3-year plan period, combining organic growth and targeted M&A (inorganic growth) to accelerate expansion.
• Four core priority growth businesses are defined:
  • North America: Expand product lineup beyond core hydraulic excavators and wheel loaders as part of the second phase of standalone branded expansion, to further increase market share.
  • Latin America: Expand growth infrastructure, with a focus on mining, continue building out finance, supply chain and service systems, and strengthen parts, services and specialized parts/services business.
  • Mining: Prioritize North, Central and South America and Africa, strengthen core products, expand specialized parts, services and adjacent business areas.
  • Parts & Services: Capture higher penetration of revenue from the growing installed base driven by North America, Latin America and mining expansion, to grow sales and profit.

Open Strategy & Capability Building

• Open innovation strategy with dealer and partner networks: Leverage the company's core strengths of 75 years of R&D and manufacturing capability, a global network of ~300 dealers and ~9,000 mechanics, and open collaboration with partners to deliver innovative solutions while pursuing an asset-light growth model.
• R&D and competitiveness enhancement: Integrate core manufacturing technology with digital capabilities, refine core technologies such as quality control and hydraulic control, combine operational data from global installed machines with AI to accelerate innovation, and deliver high-value-added products and services that address customer site challenges.
• AI collaboration: Pursue a core strategy of combining human expertise with AI advancement, deploy AI across customer-facing areas to improve construction site safety, equipment utilization, and optimize maintenance services, with AI supporting human work to strengthen competitiveness.
• Sustainability and human capital management: Continue progress toward 2050 carbon neutrality aligned with a 1.5°C warming scenario, pursue circular economy and nature-positive initiatives; improve employee engagement and diversity & inclusion, build an environment where all employees can drive change as part of sustainable growth.

Corporate Context & Transformation

• Following separation from the Hitachi Group and a change in shareholder structure with Itochu becoming the largest shareholder, the company has built a stronger cash generation capability and improved balance sheet from the prior medium-term plan, and is now positioned for accelerated growth, with internal cultural shift toward more proactive expansion to capture new opportunities.

1. Overall consolidated: For the full fiscal year 2025 (ending March 2026), sales revenue increased 2% year-over-year to 1.4055 trillion yen, adjusted operating profit decreased 8% year-over-year to 133 billion yen, profit margin was 9.5%, operating profit was 130.1 billion yen with a 9.3% margin, and net profit attributable to parent shareholders decreased 10% to 73.2 billion yen. The overseas sales revenue ratio held steady at 84% year-over-year.
2. Mining segment: 2025 fiscal year mining sales revenue (including specialized parts, services, rental, used sales and software) was 424 billion yen, down 1% year-over-year, accounting for 30% of total consolidated sales (down 1 percentage point year-over-year). Within mining, truck unit sales decreased 38% year-over-year and excavator unit sales decreased 2% year-over-year due to pullback from large delivery projects in Africa and Latin America, while specialized parts and services business increased 8% year-over-year from prior M&A effects, and overall parts and services held nearly flat year-over-year. For 2026 fiscal year, mining sales are projected to increase 12% year-over-year to 474.4 billion yen, accounting for 33% of total consolidated sales (up 3 percentage points year-over-year), with 8% local currency revenue growth projected.
3. Value chain (recurring revenue) segment: 2025 fiscal year value chain sales revenue increased 4% year-over-year to 619.7 billion yen, accounting for 44% of total consolidated sales (up 1 percentage point year-over-year). While overall parts and services held nearly flat year-over-year, rental business increased 13% and specialized parts and services increased 8%, reaching a new all-time high revenue. For 2026 fiscal year, value chain sales are projected to increase 5% year-over-year to 650.7 billion yen, accounting for 46% of total consolidated sales (up 2 percentage points year-over-year), with construction/mining parts and services projected up 2% to 330 billion yen, and specialized parts and services projected up 19% to 162.4 billion yen.
4. By region: 2025 fiscal year saw year-over-year sales growth in Europe, India and Japan, while sales declined in the Americas, Oceania and China. In the Americas, OEM supply sales declined sharply but standalone branded business grew; for 2026 fiscal year, overall Americas sales are projected to grow as standalone business expansion offsets ongoing OEM decline, with Middle East and India projected for nominal sales decline but India projected for local currency sales growth.

• FY2026 (ending March 2027) Financial Guidance: Expects revenue of 1.43 trillion yen (+1.8% YoY), adjusted operating profit of 140 billion yen (+5.3% YoY), net profit attributable to parent shareholders of 80 billion yen (+9.3% YoY), with an adjusted operating margin of 9.8%. Revenue growth includes a 183 billion yen boost from assumed exchange rates, with growth also expected in local currency terms.
• Dividend Guidance: Plans a 15 yen per share increase in annual dividend to 190 yen per share, maintaining the full-year dividend guidance for FY2025 at 175 yen per share as previously announced.
• Demand Guidance: Global hydraulic excavator demand is projected to decline 2% YoY to 229,000 units in FY2026, after a 6% YoY increase to 234,000 units in FY2025 (an upward revision of 18,000 units from prior guidance). For mining equipment, hard rock (gold/copper) demand is expected to remain steady in FY2026, while coal equipment demand is projected to be flat YoY, with high uncertainty.
• Long-Term Targets: The 3-year LANDCROS 2028 medium-term plan is a key milestone toward the 2030 target of becoming a top 3 player in the global construction and mining equipment industry, with a focus on growing absolute revenue and profit while maintaining efficiency targets.

• US Tariff Impact: A new 25% tariff on finished construction machinery imported into the US is expected to increase total costs by 21 billion yen in FY2026. While 14.7 billion yen of this impact will be offset by price increases, the net negative impact on profit is projected at 6.3 billion yen.
• Middle East Geopolitical Risk: Tense ongoing conflict creates multiple potential impacts: prolonged tension could disrupt supply of paints, thinners and other chemical materials, leading to higher chemical input costs and potential production disruptions; higher fuel costs could also reduce customer demand. While the company's direct business exposure to the Middle East is small, transport disruptions have already caused some logistics delays, and broader market uncertainty is creating anxiety for customers and trading partners. Impacts have not been included in the FY2026 earnings guidance due to high uncertainty.
• Demand Uncertainty: Global economic uncertainty, particularly slowing recovery in China, creates downside risk for both construction and mining equipment demand.
• Input Cost Volatility: Commodity and raw material price volatility driven by geopolitical and macroeconomic conditions could pressure margins despite ongoing cost reduction efforts.

Q: The new medium-term plan presents sales targets by growth business, with an overall adjusted operating profit target of 200 billion yen. What are the expected adjusted operating profit targets for each individual growth business?

A: Management states that the company's top priority for the plan is scaling the business to reach the 2030 top 3 industry target, so the plan prioritizes disclosing sales targets. While segment-level profit targets exist internally, management has chosen not to disclose detailed figures publicly. Management also confirms that recurring revenue within the value chain (specifically parts and specialized services) will be the core profit driver for the plan, with growth in new mining equipment and North American standalone construction equipment also contributing to profit expansion.

Q: The increased focus on inorganic growth (M&A) in the new medium-term plan is a notable shift. What is the background for this strategy, and which areas will the 500 billion yen growth investment be allocated to?

A: The shift comes after 3 years of building standalone business in the Americas following separation from prior partnerships, when management concluded that the company's current 400,000-unit global installed base is insufficient to reach the 2030 target, particularly due to a weak footprint in the Americas. After year-long discussions with investors, management concluded that scaling is necessary, and M&A is well-aligned with the company's open innovation strategy to grow the top line. Investment will focus on strengthening the four core priority businesses: North America expansion, Latin America growth, mining expansion, and value chain/recurring revenue expansion, while leveraging the company's already improved inventory management and cash generation capability to deploy leverage for growth.

Q: What specific impacts is the current Middle East tension having on the company's construction and mining operations and demand?

A: Currently, there is no major impact to manufacturing operations, but prolonged tension could disrupt supply of chemical inputs such as paints, thinners and oils, leading to higher material costs. Higher fuel costs could also pressure customer demand. While thermal coal prices have risen, which supports mining demand, higher fuel costs have also reduced mining operation utilization. The company has had logistics disruptions from shipping chokepoints and has evacuated staff families from the region, but the company's total business exposure to the Middle East is very limited, so the overall impact to full-year earnings is expected to be small. No material impacts have been seen in India or other Asian markets to date.

Q: What internal changes in thinking led to the greater focus on inorganic growth in this plan, compared to the prior medium-term plan?

A: The process of separating from the Hitachi Group and preparing for the name change to LANDCROS has created a cultural shift within the company, with employees now feeling more opportunity and urgency to create new growth rather than relying on prior legacy frameworks. While core strategies for North America, Latin America and parts have not changed, the company has already delivered on initial targets such as reaching 10% monthly share in North American construction, and now needs to scale further to hit full growth targets. The company has now built a solid cash generation base from prior reforms, and is ready to pursue bolder growth including inorganic options, with the change in shareholder structure providing additional opportunities to accelerate expansion.