Earth Corporation Q2 FY2026 Earnings Analysis: Price Pass-Through and Cost Management Offsetting Inflation, and the Forefront of Structural Reform via M&A

Earth Corporation's financial results for the second quarter of the fiscal year ending December 2026 demonstrate profit progress exceeding initial plans, driven by robust growth in core businesses and disciplined cost management, despite a challenging external environment marked by soaring raw material costs and geopolitical risks. This report provides a detailed analysis of the company's performance trends, factor analysis, segment-specific status, and mid-to-long-term growth strategy, centered on 10 key topics derived from the disclosed financial materials.

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1. Q2 FY2026 Earnings Summary and Progress Against Plan

For the cumulative second quarter, consolidated results were as follows: Net Sales of 109.05 billion yen (+6.2% YoY, +0.1% vs. plan) , Operating Profit of 13.21 billion yen (-2.5% YoY, +7.9% vs. plan) , Ordinary Profit of 13.48 billion yen (-1.2% YoY, +7.8% vs. plan) , and Net Profit Attributable to Owners of the Parent of 8.79 billion yen (-6.2% YoY, +1.1% vs. plan) .

Net sales increased year-on-year, successfully meeting the initial plan. While profit saw a slight year-on-year decline due to a rise in the cost of sales ratio caused by surging raw material and material prices, the company achieved an operating profit surplus of +0.96 billion yen (+7.9%) against the plan through appropriate management of selling, general, and administrative (SG&A) expenses, including advertising.

The following slide provides an overview of the earnings highlights for the period.

This slide succinctly illustrates the earnings structure for the period: "While net sales landed as planned, operating profit significantly exceeded the plan due to SG&A expenses being managed within budget." Although the cost of sales ratio rose from 56.0% in the same period last year to 56.7%, and the gross profit margin declined to 43.3% (-0.6pt vs. plan), keeping the SG&A ratio at 31.2% (-1.4pt vs. plan) enabled the company to secure an operating profit margin of 12.1% (+0.9pt vs. plan).

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2. Cost Impact of Escalating Middle East Tensions and Price Pass-Through Measures

The most significant concern currently impacting the company's performance is the rise in raw material, material, and logistics costs due to escalating tensions in the Middle East . The cumulative negative impact on operating profit for this period is estimated at approximately 1.0 billion yen .

The breakdown of cost increases is 49% for materials (packaging), 47% for raw materials, and 4% for outsourced processing costs. Specifically, price hikes for organic acids, the main ingredient in bath additives , and aerosol raw materials (such as LPG) for insect care products have had a significant impact. By category, insect care products have been affected by a 40% cost increase, and bath additives by 29%.

In response, the company will implement price revisions (price pass-through) starting in September 2026 (early autumn) , primarily for daily necessities such as bath additives, and expects a profit improvement effect of approximately 0.56 billion yen . The company plans to cover the remaining impact through strict expense control, aiming to minimize the actual downward pressure on full-year performance.

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3. Analysis of Operating Profit Variance (Factors for Outperformance vs. Plan)

We delve deeper into the +0.96 billion yen surplus in operating profit, which rose from the planned 12.25 billion yen to 13.21 billion yen, based on the following slide.

This slide clearly shows the changes in the profit structure, identifying "which factors pushed profit down and what covered those gaps."

• Negative Factors (Total -0.70 billion yen) : Primarily driven by the rise in the cost of sales ratio (-0.41 billion yen) due to Middle East tensions and foreign exchange impacts (-0.18 billion yen) caused by the weak yen. Personnel expenses (-0.07 billion yen) and logistics costs (-0.03 billion yen) were also minor negative factors.
• Positive Factors (Total +1.67 billion yen) : The largest contributor was the under-utilization and efficient management of advertising expenses (+0.69 billion yen) . Additionally, the suppression of fixed costs across the board contributed, including advisory fees (+0.20 billion yen), sales promotion expenses (+0.16 billion yen), payment commissions (+0.11 billion yen), activity expenses (+0.11 billion yen), and R&D expenses (+0.09 billion yen).

Although the company planned to concentrate advertising investment in the first half, it is confirmed that they built a structure to generate profit efficiently within the plan by strictly evaluating investment effectiveness.

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4. Segment Trends: Expansion of Domestic Insect Care Business

The domestic insect care market performed strongly at 103.0% year-on-year , with the annual progress rate reaching 49.9% as of the end of June. In this expanding market, Earth Corporation captured a market share of 60.2% (+1.0pt YoY) , further solidifying its leading position.

Driving performance is the innovative insect care product series, "OH! No-Mat." Supported by its convenience—requiring no outlet and working simply by being placed—it achieved a strong start at 121.6% of the plan . By capturing the overall market demand while introducing high-value-added new products, the company has achieved both higher unit prices and increased market share.

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5. Segment Trends: Domestic Daily Necessities Business (Oral Hygiene & Bath Additives)

In the daily necessities business, value-added strategies and brand restructuring are progressing.

• Oral Hygiene (Mouthwash) : While the overall mouthwash market grew to 105.9% YoY, the company's "Mondahmin" series performed exceptionally well at 103.4% of the previous year's shipments and 110.2% in retail sales . Building on last autumn's renewal, the company successfully raised customer unit prices by shifting toward the high-end "Mondahmin Premium Care" and introducing large-capacity pouches. The company's market share rose to 18.8% (+0.2pt).
• Bath Additives : While the overall market remained flat at 100.3% YoY, the company's flagship brand "Onpo" grew to 109.6% , and "BARTH," which captures night-care and nighttime demand, grew to 112.1%. Although market share was 41.8% (-0.7pt) , profitability improved due to an increased proportion of high-unit-price, carbonated-type products.

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6. Segment Trends: Overseas Business Growth and Regional Topics

Although the overseas business faces varying economic trends and distribution environments by region, it maintains an overall upward trend in revenue.

• ASEAN Expansion (Malaysia/Philippines) : In Malaysia , insect care products and the "OASIS" air freshener performed extremely well, with sales reaching 11.5 million ringgit (8.9 million in the same period last year, 9.8 million planned), a significant increase. Standard adoption at major accounts is increasing. The Philippines also exceeded the plan with 2.2 million pesos, driven by aerosol products.
• ASEAN Core (Thailand/Vietnam) : Thailand maintained over 100% of the previous year on a local currency basis (10.3 million baht) despite a shrinking market. Vietnam recorded a steady 530 billion dong while controlling promotional expenses to maintain brand value.
• China/Exports : China remained at 69.7 million yuan (93.2 million yuan planned) due to some missed targets at major accounts, but the company is strengthening the development of emerging channels. Exports saw growth in Hong Kong and Taiwan, offsetting the impact of Middle East tensions on Saudi Arabia, resulting in a total increase to 2.14 billion yen (1.99 billion yen in the same period last year).

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7. Breakthrough in Comprehensive Environmental Sanitation Business and Strategic Significance of Singapore M&A

The Comprehensive Environmental Sanitation Business , a pillar of the BtoB business, has seen its annual contract count steadily increase to 16,646 (15,936 in the same period last year) , driven by heightened customer awareness of hygiene management amid foreign matter contamination concerns and legal revisions. The unit price per contract is also on an upward trend due to the provision of highly specialized quality assurance support services.

Furthermore, the business has executed a significant M&A to accelerate its ASEAN expansion.

This slide outlines the "acquisition of 100% of the shares of a local Singaporean corporation (Marvel Clean PTE. LTD., etc.) by Earth Environmental Service (making it a wholly-owned subsidiary)."

• Background and Significance of M&A : The target company possesses a strong customer base and expertise in building maintenance, cleaning, and pest control in the Singapore market. By positioning this company as an ASEAN business hub , the goal is to transplant the advanced environmental sanitation management know-how (one-stop provision of investigation, consulting, and construction) held by Earth Environmental Service to accelerate horizontal expansion into Indonesia, the Philippines, Malaysia, India, and others. With recent sales of 0.946 billion yen (FY2025), the company is growing steadily and will contribute to solidifying the group's stable revenue base.

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8. Realization of Bathclin Integration Synergies and Cost Structure Reform

Regarding the absorption-type merger of Bathclin Corporation , a key measure for 2026, the expenditure of one-time integration costs (0.14 billion yen) is largely complete.

This period, the company expects 0.33 billion yen in cost synergies , significantly exceeding the one-time costs incurred, marking the entry into a clear profit-contribution phase. Specifically, the company is advancing the mutual utilization of distribution channels, cost reductions through formula improvements, production efficiency gains through the consolidation of production sites, and the fusion of fragrance technology and herbal medicine expertise. The company has set a goal of "capturing a 50% share of the mid-to-long-term bath additive market," and the synergy from the integration with Bathclin is the primary driver of this goal.

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9. Social Implementation of MA-T® Business and Evaluation of BtoB Marketing

In the MA-T® business , the core of the new business, the company is moving beyond simple sales of disinfectants to build a "problem-solving ecosystem."

Particularly in the nursing care sector, the company has built a platform in collaboration with cleaning equipment manufacturers and nursing care product cleaning operators. This has contributed to reducing the burden on nursing care sites facing labor shortages by achieving a 30% reduction in cleaning time and an 80% reduction in mattress disposal rates. In recognition of these efforts, the company received the Jury's Special Award at the "Nikkei Cross Trend BtoB Marketing Awards 2026" hosted by Nikkei BP. Social implementation is accelerating as a new revenue pillar unaffected by seasonal factors.

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10. Full-Year Earnings Forecast and Vision for "COMPASS 2026"

Regarding the full-year forecast for the fiscal year ending December 2026, although there are uncertainties such as cost hikes due to Middle East tensions, the company has determined that these can be covered by price pass-through measures and SG&A expense control, and has maintained the initial plan .

• Full-Year Net Sales : 188.0 billion yen (+4.9% YoY)
• Full-Year Operating Profit : 9.0 billion yen (+11.4% YoY)
• Full-Year Net Profit Attributable to Owners of the Parent : 6.2 billion yen (+18.5% YoY)
• Target ROE : 8.1% (7.3% in the previous fiscal year)

Based on the mid-term management plan "COMPASS 2026," the company is steadily building a robust management foundation with multiple revenue sources: "stable revenue from insect care products," "profitability improvement in daily necessities and gardening products," "making the comprehensive environmental sanitation business a core revenue source," "monetization of MA-T®," and "making the overseas business a growth driver." The structure aimed at sustainable corporate value enhancement through the steady implementation of price revisions and global expansion triggered by M&A is becoming increasingly clear for the second half and beyond.