Earnings call transcript: Itochu Corp sees 137% profit growth in Q1 2025

In the Q1 2025 earnings call, Itochu Corp reported a significant 137% increase in consolidated net profit, reaching 283.9 billion yen. Despite a decline in core profit due to yen appreciation and resource price drops, the company remains confident in achieving its annual profit target of 900 billion yen. Itochu’s stock saw a remarkable surge, reflecting positive investor sentiment. Currently trading at $57.56, the stock is approaching its 52-week high of $58.49 and has delivered a 16.24% return year-to-date.

Key Takeaways

• Itochu’s net profit surged by 137% year-on-year to 283.9 billion yen.
• The company made progress towards its annual target, achieving 32% of the goal.
• Core profit faced a decline due to external factors like yen appreciation.
• Strong performance in consumer sectors contrasted with weaker results in resource-related areas.
• Itochu plans significant investments and share buybacks to drive growth.

Company Performance

Itochu Corp demonstrated robust overall performance in Q1 2025, driven by substantial growth in its consumer-related sectors. The company’s net profit increased by 137% compared to the previous year, indicating strong operational execution. However, core profit declined by 21 billion yen, highlighting challenges in the resource sector due to external economic factors. The company’s strategic focus on non-resource businesses, which now constitute 90% of its operations, helped mitigate some of these challenges.

Financial Highlights

• Consolidated net profit: 283.9 billion yen, up 137% YoY
• Core profit: 181 billion yen, down by 21 billion yen
• Gross investments: 297 billion yen, with significant allocations to pre-decided and new projects
• Share buybacks: 61.6 billion yen completed out of a planned 150 billion yen

Outlook & Guidance

Itochu maintains confidence in achieving its annual target of 900 billion yen in net profit. The company is focused on a business turnaround in the coming quarters, with a currency assumption of 140 yen to the dollar. Economic policies could impact profits by up to 40 billion yen, but the company is optimistic about its strategic initiatives and investments.

Executive Commentary

"We have no concerns in achieving the annual budget," stated Tsuyoshi Hachimura, CFO, emphasizing the company’s strong performance and strategic direction. He also noted, "Our business model tends to be concentrated towards the second half of the year," suggesting that Itochu expects continued momentum in the upcoming quarters.

Risks and Challenges

• Yen appreciation could continue to impact profitability.
• Resource price volatility poses risks to core profit.
• Potential economic slowdown in key markets like the U.S. and China.
• Competitive pressures in international auto and construction machinery markets.
• Uncertainties in global economic policies could affect business operations.

Itochu Corp’s Q1 2025 results reflect a strong start to the fiscal year, with significant profit growth and strategic investments paving the way for future success. Despite challenges in the resource sector, the company’s focus on consumer-related businesses and strategic initiatives positions it well for continued growth.

Full transcript - Itochu Corp CFD (8001) Q1 2026:

Tsuyoshi Hachimura, CFO: Hello everyone, this is Tsuyoshi Hachimura, CFO. Today I’d like to explain our results for the first quarter using the presentation titled Business Results Summary. Let’s begin with page three of the PowerPoint showing the business results. Our consolidated net profit was ¥283.9 billion. This was partly driven by progress made in our asset replacement strategies, and we achieved a record Q1 in terms of year on year. It was 137% of the same period last year, and we made 32% progress towards the ¥900 billion consolidated net profit target. The numbers are not evenly spread throughout the quarters, but we made a good start in line with our initial plan. There were a lot of one-off impacts in Q1, but our business model tends to be concentrated towards the second half of the year.

We have no concerns in achieving the annual budget and are making good progress in the various parts of our profit growth plan. As for the impact from tariffs, as we highlight at the bottom points section, the impact in Q1 was minimal, and thanks to the agreement reached on reciprocal tariffs, there is now less uncertainty. However, that doesn’t change the fact that there was a big increase in the tariff amount, and we need to continue to look out for the impact of U.S. (Trump 2.0) policies on the economy, not just from tariffs, and we remain cautious because the subject of the negotiations could change at any time and are not yet final.

In terms of the year on year comparison for the textile, energy and chemicals, food, information and communications technology, and finance businesses, and the eighth did well, which are the non-resource businesses, and for others, which includes one-off profit items such as the CPP capital gain. Meanwhile, for metals and minerals, general merchandise and realty, and machinery did not perform that well. As a result, the breakdown of non-resource to resource is nine to one. On page five, we show our core profit, and you can see that there was a ¥21 billion decline year on year because total was ¥181 billion. As we explained on page five, the main reasons for the ¥21 billion year on year decline are the decline in resource prices, yen appreciation, and the underperformance of the resource businesses, mainly metals and minerals. Those were the main factors.

As for the consumer-related sectors, there were some ups and downs, but overall they did well, and these sectors offset the negative from the resource operations. In any case, we are still in Q1 and we plan to build up the numbers in Q2, 3, and 4 as we go along. In terms of the status regarding the turnaround, there may be some questions later, but we are making progress according to plan. As for the yen appreciation in Q1 of last year, the average was 155.85 yen, this year it’s 144.59 yen. The yen appreciated by more than 11 yen. There was a ¥12 billion negative impact from that, and for resource prices there was a ¥9 billion negative impact mainly from the iron ore prices.

The ¥4 billion negative impact for resource core profit shown here includes factors such as the volume and cost impact from EMEA, iron ore and coal, as well as SIECO Azer. Going back a bit to page 4, this shows the performance of each segment. The consumer-related segments did well in terms of year on year. The eighth company, textile, food, energy, and chemicals did well. Meanwhile, metals and minerals, general products and realty, and machinery declined, and ICT and financial business was in line with last year. The eighth company benefited from the increased daily sales in FamilyMart, the expansion of new businesses, as well as the strengthening of the business platform. Textile did well thanks to the impact from acquiring an additional stake in Descente as well as apparel, mainly in the area of international sports.

In food, the trading of provisions such as rice and cacao was strong, and group companies such as Dole, Nippon Access, and High Life did well. Meanwhile, the businesses that were not that strong were metals and minerals. This was due to the decline in the market pricing, the weakness in mining operations, the FX valuation loss for the deposit owned by the Brazil Iron Ore CM, as well as for Marubeni Itochu Steel there was the delay in recovery for demand for steel materials and steel pipes, and for general products and realty. Itochu Fibre Ltd., which is the Finland pipe-related entity, did not do that well due to market impact as well as the lack of recovery in demand from China. The North America housing materials business was also partly weak.

On the other hand, in Q1 of last year there were a lot of real estate disposals concentrated in that period, so there was the rebound from that. In machinery, there was negative impact from the suspension of operations in Asia IPP. For shipping, there was the gain on sale of ships in Q1 of last year, and there was also the decline in the shipping market pricing which affected the earnings. For Yanase in Q1 this year, unlike last year, there was the decline in markets for the used cars and also weak numbers for both new and used cars in the first quarter. For construction machinery, especially Hitachi Construction Machinery as announced two days ago by Hitachi Construction Machinery themselves, there was a downward revision related to the situation in North America. Meanwhile, the international auto business was slow.

In general, this was not so much due to the number of cars exported. It was more to do with the strong yen, reducing the yen-translated profit from our international operations. For ICT and financial business, which was in line with last year for CTC, they did well, very well in each of the five segments. Although this was as expected, the number of contracts is declining in the mobile phone related business. On a net basis there wasn’t that much growth in ICT and financial business. On page 27 we show the one-off PL items. The total is ¥103 billion. There was the gain on the sale of CPP, ¥88 billion. There was the ¥8 billion from the disposal of Province Yule in food business and for machinery, there was the partial sale and revaluation of the stake in Jamco.

This was in the machinery segment and if you add them up, it was total ¥103 billion. As for investments on page 10, gross investments amounted to ¥297 billion. ¥185 billion of that was already decided in FYE 2025, so the new investment decisions amounted to ¥50 billion including Aichi Corporation, Nishimatsu Construction, and part of Hitachi Construction Machinery investment. There was ¥62 billion of CapEx leading to the total of ¥297 billion. As for exits, it was mainly CPP and total of ¥201 billion, making the net investment ¥96 billion. In terms of shareholder returns shown on page nine for share buybacks, ¥40.1 billion as of June end, we’ve said that we will buy back from the market ¥150 billion during the period of May 7 to December 31 and we recently announced the numbers as of July end, ¥61.6 billion. 41% progress.

We are making very good progress in buying back from the markets. As for the minimum dividend of ¥200, which we announced at the beginning of the fiscal year and for which the feedback from the market was not all positive. As for this ¥200 per share number, because our business is concentrated more in the second half of the year, we will monitor the progress in our earnings towards the second half and flexibly consider this number, and we expect discussions to take place at our board as well. In terms of our full year outlook on page eight, we have some commentary on each of the factors, and things are going pretty much in line with our expectations. We are confident that we can achieve the ¥900 billion, and I’m happy to take any questions in the Q&A session.

For details and in terms of the points I’d like to consider and look out for in Q2 onwards, although agreement was reached for tariffs, the impact including the passing on to prices in the U.S. is to be determined going forward. The consumption trends in the U.S. is something I’d like to look out for in terms of the Japan and U.S. financial policy and monetary policy. The FRB and the Bank of Japan agreed to maintain the status quo for the time being, but the impact on currency which this could have is somewhat concerning. As for China, the government is expected to implement more and more economic stimulus packages going forward. Under these circumstances, the outflow from China, especially in this overcapacity situation, is somewhat concerning. On the other hand, the currency assumption is ¥140, and the sensitivity is ¥2.4 billion to a ¥1 fluctuation.

As for the impact of the economic slowdown from President Trump’s policies, which we assume to be ¥40 billion, the actual impact in Q1 was, at least in relation to tariffs, extremely minimal. Considering the impact of these items, although there is some upside, we need to make sure to turn around some businesses according to our initial plan in the coming Q2, Q3, and Q4, and that concludes my presentation.

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