SANRITSU CORPORATION Q1 FY2026 earnings call

• Company Overview

  • Founded in 1948, 77 years of operation as of the seminar. Most recent full-year consolidated revenue is 20.1 billion yen, with 449 consolidated employees and over 1,000 total employees including contract and dispatched workers. It has 10 domestic locations (centered in the Kanto region), with 1 consolidated subsidiary domestically and 1 in the U.S. after exiting the China market in March 2025.
  • Core competency is custom industrial packaging, with capabilities to handle products ranging from small precision devices to 50+ ton ultra-large industrial equipment. It offers all packaging formats in-house (corrugated, reinforced corrugated, wood crates/boxes, steel packaging), and has expanded from pure packaging operations to become a packaging-centered integrated logistics provider.

• Product and Geographic Focus

  • Focuses on four product groups: small precision equipment, large precision equipment, medical equipment, and machine tools, which account for over 90% of total revenue. Large precision equipment (especially semiconductor manufacturing equipment) is the fastest growing segment, with further growth expected from AI expansion and growing demand from the data center industry.
  • Currently only has overseas operations in the U.S., with 3 owned warehouse locations in Los Angeles (West Coast), North Carolina, and Savannah, Georgia (East Coast). All U.S. warehouses have installed large cranes, a rare and high-value capability that is highly rated by customers. The company plans to expand customer base (centered on Japanese machine tool manufacturers) and capture nationwide transportation business across the U.S.

• Core Competitive Advantages

  • 1. International logistics: It operates bonded warehouses at Yokohama and Narita (key export gateways) with integrated packaging factories on-site, enabling one-stop service to reduce lead time and costs for customers. It holds both sea and air freight transportation licenses, enabling fully integrated end-to-end service from domestic factory pickup to destination delivery across borders.
  • 1. Warehouse operations: It has shifted from pure 3PL third-party logistics to 4PL fourth-party logistics, offering data-driven logistics reform proposals to customers as a strategic partner, with a focus on small precision equipment and medical equipment.
  • 1. Packaging design: It has an in-house dedicated packaging design team that creates custom designs for customer products, and its design capabilities have won international awards including the World Star Award from the World Packaging Organization.
  • Few competitors can handle in-house custom steel packaging for ultra-large products, and the company's focus on high-value, one-of-a-kind products means it faces limited price competition compared to commodity packaging segments.

• Mid-term Management Plan Progress

  • The 3-year mid-term plan (2024-2026 March term) has the vision "From Operations to Solutions", aiming to shift from a passive operation-focused model to a proactive solution provider that identifies and solves customer problems.
  • Profitability improvement: The company has steadily implemented appropriate price increase negotiations with customers against ongoing rising labor and material costs, and reduced the cost of goods sold ratio by 1.5 percentage points compared to two years ago. It has completed three years of data collection for warehouse operations via the "Rojimeter" tool, and is now moving to the stage of implementing data-driven operational improvements.
  • Completed opening of the Fuchu Warehouse, a leased facility adjacent to a major customer's manufacturing plant that enables just-in-time parts delivery, allowing the customer to focus on core manufacturing and delivering significant value.
  • The Savannah (U.S. East Coast) warehouse now connects Japanese and U.S. customer factories to enable seamless integrated international logistics.
  • A new 8,100.25 tsubo warehouse in the Narita area is currently under construction, scheduled for completion in July 2026, to capture expected 1.5x cargo volume growth from Narita Airport's planned third runway. The company is currently conducting sales activities centered on semiconductor manufacturing equipment customers to build a solid revenue base at this location.

• Sustainability and Organizational Initiatives

  • Established a formal 5-point sustainability basic policy aligned with corporate philosophy, and runs regular sustainability training for all employees (including executives) to build consistent organizational awareness.
  • Hosts a public cardboard art contest to promote cardboard recycling and highlight the company's packaging design capabilities.
  • Runs a diversity and workplace improvement project, initially focused on supporting women in logistics workplaces, and now expanded to addressing unconscious bias for all employees. It conducts annual workplace environment surveys to continuously improve working conditions, viewed as critical for securing future labor.
  • Maintains a women's table tennis department competing in Japan's top league, which performs well in national competitions and runs regular community table tennis classes for local children as a social contribution activity.

1. Packaging Segment: This is the company's core business, accounting for 70% of total revenue. It focuses on custom industrial packaging for large, high-value, and sensitive products, with growing demand from the semiconductor and data center sectors.
2. Transportation Segment: Sanritz owns ~30 vehicles in-house, and partners with external cooperating companies across Japan to provide nationwide transportation services. No specific revenue contribution percentage is disclosed.
3. Warehousing Segment: Operates a combination of owned and leased warehouses. All owned warehouses are fully air-conditioned with high-lux lighting to differentiate from general multi-purpose warehouses, providing optimized warehousing operations for customer products. No specific revenue contribution percentage is disclosed.
4. Rental Building Segment: Only includes the operation of the company's own headquarters building. No specific revenue contribution percentage is disclosed.

• The original mid-term plan target for the final FY2026 March term was 22.0 billion yen in revenue, 1.1 billion yen in operating profit, and a 5% operating profit margin. The target has been downward revised to 21.0 billion yen in revenue and 950 million yen in operating profit, primarily due to the decision to postpone European market entry to focus resources on the U.S. market; the U.S. East Coast investment is not expected to contribute meaningfully to revenue and profit until the next fiscal year.
• For FY2026 March term, the company expects revenue to increase 878 million yen year-over-year to 21.0 billion yen, driven by full operation of Fuchu Warehouse and recovering demand for machine tools. Operating profit is expected to be 950 million yen, which appears as a year-over-year decline due to a one-off special factor (cost restatement from a fraud incident at the U.S. subsidiary in the prior year); excluding the special factor, operating profit is expected to increase year-over-year.
• By product group, small precision equipment and machine tools are expected to see growing volume; domestic large precision equipment demand is solid, but consolidated large precision equipment revenue is expected to decline year-over-year due to the exit from China.
• By region, U.S. revenue is expected to decline year-over-year in FY2026 due to temporary stagnation of export volume from Japan caused by tariff impacts. The company aims to recover U.S. revenue quickly by growing new customers and fully ramping up operations at the Savannah warehouse.
• The full-year dividend is forecast to be 27 yen per share, in line with the company's target 30% consolidated payout ratio. The company has maintained dividends for 37 consecutive terms since its public listing, and aims to continue stable dividend payments going forward.
• Q1 FY2026 performance was broadly in line with plan, with U.S. revenue declining year-over-year in line with forecasts.

• Geopolitical risks: International shipping routes are increasingly exposed to disruption risks from geopolitical tensions. The company's decision to focus overseas resources solely on the U.S. market was partially made to mitigate exposure to broader geopolitical risks, and the company will continue to monitor developments and respond as needed.
• U.S. tariff policy: Tariff impacts are expected to cause temporary stagnation of Japanese export volume to the U.S. and reduce U.S. segment revenue in FY2026.
• Cost inflation: Rising labor and material costs continue to pressure margins, though the company has offset this via price increases and operational efficiency improvements to date.
• Exchange rate risk: Over 90% of the company's own revenue is denominated in yen, so direct impact on Sanritz's results is limited. However, many of the company's customers are export-focused, so exchange rate volatility can indirectly impact customer business performance and cargo volume.
• Very few domestic competitors have the large-scale facilities required to handle custom steel packaging for ultra-large products, so the company faces limited competition in its core high-margin segment, but general commodity packaging sees significant competition and price pressure.

Q: What parts of the current medium-term plan progress give management the most confidence?

A: Management highlighted two key areas of positive progress. First, capital investments in the Savannah (U.S.) and Narita warehouses are progressing well: the Savannah facility has already received very positive customer feedback, and Narita is already in advanced commercial discussions with prospective customers ahead of its 2026 completion. Second, the solution-oriented business model demonstrated by the Fuchu Warehouse has been successful, with significant revenue growth from the project, and management expects to replicate this success to drive further overall business expansion.

Q: Is the Narita Airport expansion a targeted business opportunity for the new Narita warehouse, and how does semiconductor manufacturing equipment demand play into this?

A: The company explicitly built the new Narita warehouse to capture growth from the airport expansion, which is expected to increase total cargo volume by 1.5%. Semiconductor manufacturing equipment, which the company already specializes in, sees very high volumes of air export from Narita, and overall industry growth is expected to increase air freight volumes of this cargo significantly even though ocean freight also remains common for the segment.

Q: Was there pre-implementation rush demand ahead of the new Trump tariffs, and what was the nature of customer behavior?

A: There was some rush demand in the period immediately before new 15% tariffs were announced in April. However, there was a clear split in customer behavior: some customers rushed shipments ahead of the tariff implementation, while others held shipments due to uncertainty about the final tariff outcome. Overall, customer hesitation outweighed rush demand among Sanritz's client base in the pre-implementation period.

Q: What is the company's priority for talent development, and does it have any unique initiatives?

A: The company's top talent development priority is培育培养 (growing) skilled packaging personnel. Packaging work is not actively sought after by young new employees, so the company is working to both train new skilled workers and make packaging a more attractive career within the organization to secure the long-term future of its core competency.