Daikin Industries,Ltd.

Q1 net sales and operating profit increased in real terms excluding foreign exchange effects, but sales were slightly short of plan while operating profit and other profit were slightly above plan. Operating profit margin was 10% in Q1, exceeding internal plan. The direct negative impact of U.S. tariff measures was approximately JPY7.5 billion on an operating profit basis, and this was fully absorbed by about JPY5 billion of price increases and about JPY2.5 billion of cost reductions. Management reiterated that the full-year operating profit plan is JPY435 billion and said it aims to exceed that; the previously announced direct tariff impact of JPY47 billion is now expected to be lower. No next-quarter numerical guidance was given, but management said Q2 onward will focus on further profit improvement, market-share recovery, and additional price/cost actions as needed.

Koichi Takahashi said the company is shifting more clearly toward profitability and capital efficiency after feeling it had leaned too far toward sales growth. He emphasized higher-value products, disciplined pricing, and cost reduction as the drivers of Q1’s stronger margins, and said this mindset is now taking root across the company. He also said the company will continue to fight the weaker demand environment in the U.S., China, Europe, and parts of Asia while aiming to exceed the annual profit plan.

Takahashi cited concrete profitability actions and figures: the Q1 tariff impact was about JPY7.5 billion, offset by about JPY5 billion of selling-price increases and about JPY2.5 billion of cost reductions. He said the annual tariff impact previously guided at JPY47 billion should now be lower due to changing tariff conditions, including some offsets from reduced provisional tax rates in the EU, Thailand, and Malaysia. He also said inventories were slightly higher in real terms versus last year, mainly due to weak Asia demand, chemicals restocking in the U.S., and higher DNA production, but he did not see inventory as a company-wide major problem; annual plans for capex, depreciation, and R&D were unchanged.

Analysts focused heavily on U.S. residential HVAC, asking whether Win-Back gains were being helped by a temporary R454B supply shortage and whether Daikin could still grow as that advantage fades. Management said the supply issue helped, but Daikin also gained share through dealer visits and promotion of R32, and it expects the Win-Back process to continue, though market-share gains were less than hoped in Q1. Questions also centered on inventory and tariffs: management said U.S. residential distribution inventories remain high, but expects R410A inventories to approach almost zero by end-September or later, while additional tariff-related price increases are being considered for steel, aluminum, and copper. Analysts also pressed on profitability in China and Japan, and management said China margins remain above 20% while Japan’s margin improved materially and is now expected to exceed the prior 7% to 8% annual plan.