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Introduction & Market Context
LIXIL Corporation (TSE:5938) released its Q1 FYE2026 financial results on July 31, 2025, covering the period from April 1 to June 30, 2025. The company reported a remarkable improvement in profitability despite a slight revenue decline, as it continues to navigate varying market conditions across its global operations.
The building products manufacturer saw its stock decline 1.63% following the earnings release, closing at ¥1,723, though it maintains an 8.44% gain over the past year. According to the presentation, LIXIL has essentially completed its major structural reforms initiated two and a half years ago, positioning the company for more sustainable growth moving forward.
Quarterly Performance Highlights
LIXIL reported a 1.4% year-on-year decrease in revenue to ¥364.7 billion for Q1 FYE2026. However, the company achieved a dramatic improvement in profitability metrics across the board.
As shown in the following consolidated business results:
Core earnings surged to ¥9.0 billion from just ¥0.6 billion in the same period last year, representing a fifteen-fold increase. Gross profit rose 6.3% to ¥124.8 billion, with gross profit margin expanding from 31.7% to 34.2%. EBITDA increased by 35.0% to ¥29.4 billion, with the EBITDA margin improving from 5.9% to 8.0%.
The company's quarterly loss narrowed significantly to ¥0.9 billion from ¥5.9 billion in the previous year, with earnings per share improving from -¥20.39 to -¥3.17.
Segment Analysis
LIXIL's performance varied considerably across its three business segments and geographical regions, as illustrated in the segment breakdown:
The Water Technology Business (LWT), LIXIL's largest segment, saw revenue decrease by 3.2% to ¥193.2 billion, but core earnings more than doubled, jumping 151.8% to ¥10.6 billion. This improvement was driven by strong renovation sales in Japan and favorable product mix in Europe and the Middle East, despite challenges in the Americas.
A closer look at the Water Technology Business reveals the contrasting regional performance:
In Japan, LWT revenue increased 6.5% to ¥77.6 billion with core earnings rising 34.5% to ¥5.2 billion. The international business saw revenue decline 8.7% to ¥115.6 billion, but core earnings surged to ¥5.4 billion from just ¥0.3 billion in the previous year.
The Housing Technology Business (LHT) demonstrated similar trends:
LHT revenue decreased slightly by 0.7% to ¥128.2 billion, while core earnings increased 31.9% to ¥6.1 billion. The Japanese operations, which account for over 95% of this segment, saw core earnings rise 35.2% to ¥5.9 billion despite a 0.5% revenue decline.
The Living Business showed growth in both revenue and profitability:
Living Business revenue increased 4.7% to ¥51.3 billion, with core earnings rising 56.7% to ¥2.2 billion. All product categories performed strongly, particularly those for renovation.
Strategic Initiatives
LIXIL continues to focus on strengthening its renovation business in Japan, which has proven to be a key driver of profitability. The renovation sales ratio increased from 46% to 48% across all segments:
Total renovation sales-related products increased 6.4% year-on-year to ¥96.7 billion. The Water Technology segment saw the largest increase in renovation sales ratio, rising 2.3 percentage points to 57%.
The company has also made significant progress in its structural reforms. According to the presentation, LIXIL has recorded losses associated with the withdrawal from the ceramic siding business in LHT, which is expected to be completed by March 2026. Additionally, expenses related to the reorganization of bases in Europe have been recorded, concluding the large-scale structural reforms initiated in recent years.
LIXIL's commitment to sustainability continues to gain external recognition:
The company has been selected for all six ESG indices adopted by Japan's Government Pension Investment Fund (GPIF) as of July 2025. LIXIL received an AAA rating from MSCI ESG Ratings for the third consecutive year and was selected as a DX Platinum Company 2025-2027 for the first time in April 2025.
Forward-Looking Statements
Looking ahead, LIXIL maintained its full-year forecast, expressing confidence in its ability to sustain high performance in Japan, Europe, and the Middle East. The company expects a full demand recovery for the European business from the next fiscal year onwards.
However, LIXIL acknowledged ongoing uncertainty in housing demand in the US and China. The US housing market could potentially worsen due to rising inflation and higher long-term interest rates, while the company continues to navigate challenges related to market disruption and ERP system transition in the Americas.
The positive impacts from the sale of the US bathing business are expected to materialize after FYE2027. Meanwhile, LIXIL anticipates no significant costs from structural reforms going forward, suggesting improved financial performance in the coming quarters.
The company's waterfall chart illustrates the factors contributing to the significant improvement in core earnings:
In summary, LIXIL's Q1 FYE2026 results demonstrate that its strategic shift toward higher-margin products and renovation business is yielding substantial profitability improvements despite revenue challenges. With major structural reforms now complete, the company appears well-positioned to capitalize on its strengths in Japan, Europe, and the Middle East while working to address persistent challenges in the Americas and China.
Full presentation:
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