Lixil Corp

TSE:5938

Q1-2026 Earnings Call

[Unknown Executive]

As scheduled, we'd like to start the earnings call to explain the financial results of the first quarter for the fiscal year ending March 2026 for LIXIL Corporation. This earnings call is streamed live on the Internet. And from this occasion, we have changed the time to disclose the earnings result to 1:00 p.m. The presentation materials for this earnings call is posted on our IR page of corporate website.

So please allow me to introduce the attendees from LIXIL Corporation. Director, Representative Executive Officer, President and CEO; Mr. Kinya Seto. Executive Officer, Executive Vice President and CFO; Ms. Mariko Fujita. And Senior Vice President, leader of IR Office, Ms. Aya Kawai. The MC for the earnings call is Setoguchi, myself, I'm from the IR office. And please allow me to explain the program for today's earnings call.

Ms. Fujita, our CFO, will first explain about the overview of our earnings result. Then we have time for our Q&A. Joining in the Q&A session, CEO, Mr. Seto, will also join to respond to your questions. And we are expecting to finish at 45 minutes past 3, Tokyo time.

So I would now like to call upon Ms. Fujita, our CFO, to explain the overview of our earnings result. Ms. Fujita, please take the podium.

[Mariko Fujita, executive]

So I will give the explanation about the overview of our earnings result. I'd like to start with the key highlights, a summary of the results for the first quarter for the fiscal year ended 2026.

For Japan domestically, [ LWT ], we have been able to make a steady progress for sales growth [indiscernible] water-related renovation product. And we also experienced unexpected surge demand before the amendment to the Building Standard Act, which was an evolution of Article 4, the Special Provision. LHT renovation, the revenue was short of our budget, but the sales for new housing did not fall as much as we had expected. So we achieved according to expectations.

Overseas, the revenue come down year-on-year, however, our core earnings made a significant improvement. And for Europe and Middle East, we saw a shift to a higher priced product and maintaining a strong performance. For the U.S., as for external factor, the tariff negotiation caused some market confusion, but we also had internal factor, which was the negative impact from ERP assistant transition, as a consequence, both revenue and profit remained somewhat low.

And other matter for LHT, we have decided to withdraw from the ceramic siding business. And as a consequence, we are booking some losses. And the completion of this withdrawal of business is planned for the end of March 2026. And we also booked expenses related to reorganization of bases in Europe. But the larger-scale structural reform that we have been talking about previously have more or less been completed as a consequence of this.

Next, I'd like to explain about the business environment for now and also outlook for 2026. As I have explained, the Article 4, the rush of demand, we may experience some reaction in the second quarter almost as a consequence. But we are seeing a steady progress of the sales for our water-related business. So we are not expecting to change our forecast for the full year. LHT renovation sales, we are promoting sales promotion measures. And with that, we are expecting to see an increase in sales going forward.

For international business, full demand recovery for the European business is expected to occur from next fiscal year onwards. And so we have not changed our forecast as a result. We are continuing to work, and we do expect our sales to continue to improve. For U.S. and China, we still see the unclarity in terms of the new housing business, in particular for U.S. because of the tariff policy, inflation continuing the long-term interest could remain high. And as a consequence, that could potentially hold the housing market to slow down even more. So we do feel that there is such a risk.

Like I said before, for structural reform, we now have visibility to a certain extent on nearing completion. So we're not expecting to book any significant causes. And last -- the end of last year, we have sold bathing business and the benefit from this is expected to be materialized after FYE2027, as we have previously communicated. So in due consideration all these factors, we -- there is no change to the full year forecast.

This page is the first quarter performance highlights. On a year-on-year basis, revenue decreased with our core earnings increased. As for revenue, JPY 364.7 billion, which is plus JPY 5.1 billion, core earnings, JPY 9 billion, up by JPY 8.4 billion. EBITDA, JPY 29.4 billion, increasing by JPY 7.6 billion. As a consequence, profit for the quarter ended up at minus JPY 900 million, but health improved by JPY 4.9 billion year-on-year.

As for the details, the other -- the expenses, which is structural reform cost, and we also booked a foreign exchange loss in terms of finance costs, and also had impact from the tax benefit accounting. So as a consequence, the profit for the quarter ended up being minus JPY 900 million.

In this page, shows the details of the numbers that I have just explained. What I would like for you to focus upon is the gross profit margin. In comparison to last year, this went from 31.7% to 34.2%. In terms of our core earnings ratio, it has improved from 0.2% to 2.5%. As for EBITDA, the percentage also increased from 5.9% to 8.0%, as shown on the slide.

So here -- thank you very much. So this slide is about Q1 business results by segment. LWT were able to find core earnings increase for both Japan and international, driven -- so this is a plus JPY 6.4 billion increase for core earnings versus last year. And this was driven by strong performance margin in Europe and the Middle East.

For LHT business, we saw a slight decline in revenue. However, due to price optimization, there was an increase in profit with -- even with a decline in revenue. And so the increasing core earnings was plus JPY 1.5 billion. Living achieved both revenue and core earnings increases, supported by strong sales across all product categories. And so therefore, all in all, we have been able to find for Living that JPY 0.8 billion, but for entire LIXIL, this was plus JPY 8.4 billion versus last year.

This is a slide that shows business results under previous reporting segments. This is for your reference.

Next, this is about consolidated financial position. Total asset increased marginally. And this is because there was this impact of foreign exchange rates on assets held in Europe. Equity ratio is 33.6%.

This is my final slide. This is about cash flow status and cash balance. Our working capital, there's been a slight increase. However, operating cash flow remained flat due to improved profit before tax. And so free cash flow was able to remain positive as we ended Q1.

So that is all for me in terms of the recap of our Q1 results. Thank you very much.

[Unknown Executive]

Thank you very much, Ms. Fujita. So we would now like to proceed to the Q&A session. But before we take questions from the participants, CEO, Seto, will give some supplemental remarks regards to our earnings results. So Mr. Seto, over to you.

[Kinya Seto, executive]

Well, when we look at the housing facilities or construction material condition around the world, except for the Middle and Far East, the difficult situation continue. And despite that, revenue has not really changed all that much, but still we're able to grow our profit quite significantly, which I think was quite a strong performance. And the strong performance in that regard is a result of the effort made by everyone to realize the structural reform, and we have been able to sell differentiated products with high added value, which has led to increase in profit margin. And so it's -- as a result of these efforts, I'd like to express my sincere appreciation to our employees.

In terms of structural reform, we made plans 2.5 years ago, so the [ findings ] and logistics sites in Europe to be restructured. So these are some of the things that we have done. We have essentially completed our majority of the large initiatives that we had planned 2.5 years ago. And so we will no longer be booking a large cost related to structural reform.

So putting these two together, next fiscal year, if the business condition in Europe recovers, and the housing conditions recover as we are expecting, and if environment improves, we should be able to increase our profit quite significantly. We have been able to make that preparation in that regard.

But one area of concern is U.S. In terms of the U.S., the situation remains very unclear. And regarding the demand for housing, both for new houses and renovation, the difficulty remains. And this is one, as a result of the price of the housing increasing quite significantly. Right now, the houses today are priced 5x the income of the U.S. citizens. It used to be only 3x the annual income. And one reason for this is the continued inflation because of the tariff policy, aluminum or iron or copper. This -- the core raw material, the prices increase. And in the case of the United States is somewhat impacted by the policies and the tougher the immigration policy, which has led to decrease in the labor which has caused the labor expenses to increase. And the recent hurricanes and the bush fires have caused the insurance premiums increase for housing.

So housing no longer has -- is affordable in that regard. So people who can't build new houses have to rent. But those people renting, so the multifamily construction boom has essentially come to a halt because of the price is increasing so much for the housing. And so for -- and also the single-family houses have become smaller. So in that regard, there is a significant demand of [indiscernible] in essence. And -- so the large demand and small supply for housing right now.

But the real problem right now is that housings are not affordable, which has kind of suppressed the demand for housing. And as a consequence, the business condition for housing overall is expected to be quite poor. So that's where we're at right now. But at the same time, when we think about our competitors, Kohler or TOTO, main competitors, putting aside them -- putting them aside, but Home Depot, [ Rose ] or Walmart, for those type of companies, or even Costco, and the [ PV ] private brand, essentially manufacturers in the Asia or China. But because of the tariff, there is a possibility of the volume coming down. And so the supply will come down. So the competition should ease, so demand coming down -- supply-demand coming down. So given the possibility for both coming down, it's difficult for us to predict what may happen. So that's where we are at in one sense.

But for our situation on a stand-alone basis, last year, we have sold to ABG bathing business as project sold. And the benefit of that will be experienced from spring next year, so over the 1-year period, we will continue to operate our business while the assets are owned by them. So that's the kind of deal that we have struck. And so the cost benefit is not fully benefited this year.

So the true benefit from restructuring in the United States will only be felt from spring next year. So that unclear situation in U.S. will continue. So we need to take a cautious stand for this year. And as for this quarter, all of the businesses performed quite well, made a significant effort. But when we look at demand going forward, we do still see some unclarity and the unclarity in U.S. If we take that into consideration, it's a little bit too much to expect the continued increases in the second, third and fourth quarter. So we took somewhat of the cautious stance and decided not to change the full year forecast.

That as a background, as well as the preparation for the future, I think we've been able to address those parts quite well.

[Unknown Executive]

Thank you very much, Mr. Seto. I'd like to now open the floor to take the questions from participants.

[Operator]

[Operator Instructions] The first question will come from Okada-san from Goldman Sachs.

[Sachiko Okada, analyst]

This is Okada, I have two questions I'd like to raise. My first question is about your U.S. revenue recovery. It seems like it is taking quite a long time. But for example, goodwill amortization. What is the progress thus far?

[Mariko Fujita, executive]

Allow me to answer your first question. So the impairment loss risk of the U.S. business. So last year, we actually did some impairment test with the auditors. And as a result, at this moment, we find no signs of having to book an impairment loss. That's where we are today.

Of course, in the future, there is a chance that what we see now may change, but at this moment, it's not that we're expecting any impairment loss at the moment. So we know that the economy is turning sour at the moment, but then the DPI, we divested DPI last year. And we've also divested the bathing business last year. And so naturally, that means the P&L is really going to change and that's really going to become more visible next fiscal year. That's the premise. And we do expect -- so you can look at the chances of impairment thinking of what is going to be the P&L next year.

[Sachiko Okada, analyst]

My next question -- my second question. LWT in Japan. Margin is improving at the moment. But then I think it is outpacing your annual expectation. So price optimization, is -- and price optimization versus revenue increase, which contributed more?

[Mariko Fujita, executive]

So on price optimization, I think there was a slide where we did note our observation. And that's Slide 18. We do have a waterfall chart. And so this compares the actuals from last year. And so this mix, LWT, that's JPY 2.3 billion. In other words, the contribution of mix/pricing, that's plus JPY 2.3 billion for LWT. And of course, revenue from renovation, of course, that did contribute, but the price optimization from April has also contributed a lot.

[Kinya Seto, executive]

If I may add. For sure, it's better to go for renovation. Renovation gives us higher margin. But where we're prioritizing at the moment, so we know that renovation, it has high profitability, but then it also requires a lot of work. And so we also have to keep a balance on how much SG&A reduction we'd be able to keep.

So this time, LWT, we did [indiscernible] plus JPY 2.3 billion increase in terms of the mix pricing. Last year, it was 54% renovation proportion, but now it's increased to 57%. On the other hand, SG&A, we have been able to keep good control. So AIBI -- by utilizing AIBI, I think we are able to manufacture efficiently.

[Operator]

So the next question is from Daiwa Securities, Teraoka-san.

[Hideaki Teraoka, analyst]

This is Teraoka from Daiwa Securities. I have two questions.

Now on this occasion, the profit improvement, or recovery in [indiscernible] made a significant progress. And the revenue in Europe and the Middle East shift to higher price and there was also operational improvement. So you have explained various factors, but which was -- which factor contributed the most? So that's the first point that I wanted to confirm.

[Unknown Executive]

Well. Product mix has kind of shifted upwards. Specifically speaking, color, so from a chrome single color to multicolor version, have started to account for a larger portion of the sales, which has improved unit price, which has led to improvement in profit. And from ourselves to distributors, so based on the request we sold, and that has led the margin to improve. But as to whether we are able to maintain this profit margin or not would be somewhat dependent on how [indiscernible] sell going forward.

[Hideaki Teraoka, analyst]

And the second question is in regards to U.S., two things I wanted to check. First is ERP uptaking impact. And that was a negative fact that you have mentioned. So specifically, could you explain what has happened there?

And for next year spring, you will start to see the benefit of the sale of the bathing business. in terms of core earnings, how much can we expect to see impact show?

[Unknown Executive]

First of all, in regards to the ERP. So we've essentially replaced the old SAP system to new the SAP system. We've completed this complete replacement in May. So we won't use the new system, and there was a bug in the system that was the delay in the shipment as a consequence. So when we have delays in shipment, particularly for e-commerce business, so sometimes the customer may go elsewhere. So that leads to the sales loss to an extent or delays in dispatching the product to the customers.

We were, I suppose, incurring some impact from those. And of course, those were things that we needed to have avoided. But right now, we have come back to normal operation.

And your second question, after the [indiscernible] project has been continued, how much the profit can we expect to see? I've not been able to scrutinize the numbers as yet. So it's difficult, but we are expecting to be able to stably register profit.

[Operator]

We'd like to take next question from Morgan Stanley, MUFG Securities. It's Yagi-san.

[Ryou Yagi, analyst]

This is Yagi from Morgan Stanley, MUFG Securities. And so I also have two questions I'd like to raise at this point.

GROHE and American Standard, I actually do have questions for each. So for GROHE, the core earnings margin itself is doing well. I think it was because of a good product mix. But for example, excluding that product mix, do you think GROHE is really -- I feel like GROHE is still able to generate good core earnings, even without that product mix.

Now if we try to baseline this current good environment, what is it going to be the baseline? And towards that, how much do you think product mix will be able to put some add-ons? In other words, I want to know on what the normal capability of GROHE is at this moment?

[Unknown Executive]

That's quite a difficult question that you just raised because product mix, we haven't really been able to analyze to the extent that we'd be able to disclose. So it's quite difficult for me to answer right away to your question.

But as I mentioned earlier, we're trying to make sure we'd be able to provide high value-added type of product. In that sense -- so color, we really did not think that it would perform so well. And so this is what is creating add-ons. But in terms of profitability, it's really about whether or not we see more volume because [indiscernible] itself has not increased from last year. And so we expect -- if we look at all the projects, of course, there's like advanced cost when we try to run some project -- of one project. But that itself is doing well. So we do believe that towards the year-end, we should be able to see volumes of project, which in the end should be able to generate higher profit.

But if we try to look at this overall, DIY actually is going down. So there are -- there's a mix of what's working well, what's not. So that's what makes it difficult for me to answer. But some of the next positive turn, I think it's really going to be depending on volume.

In other words, depending on product mix, I don't believe we go back to where we were regardless of the product mix. Because some of the products that turn to -- converted to color series, once this goes out more into the market, probably we see a lot of the color products go out until the market gets more used. And of course, the next step would be, can we offer more volume there for color and which is going to be another challenge. And I know I'm not really able to -- I know I'm not really able to answer your question straight off. But because of this competition that we're finding at the moment, I'm not ready to disclose all the details.

[Ryou Yagi, analyst]

So in other words, there's no like extra unique factor other than product mix?

[Unknown Executive]

That's right. So once we have more color, again, the color proportion is going to become higher. And in other words, that's why we have more color proportion in April rather than May or June. But in the end, we expect it's going to normalize.

[Ryou Yagi, analyst]

So now I'd like to ask about American Standard. There's another question actually from a different perspective. In Q1, it made a loss due to a lot of system provision, et cetera, but from second quarter onwards, what do you expect looking at the current demand trend? Or do you think American Standard is going to suffer making losses?

So some of the activities, I did hear that you expect some of the more better turns from next year onwards. But then how are you supposed to take the current environment surrounding American Standard business?

[Unknown Executive]

So some of the major factors, I think I can point to two uncertain areas.

In short-term perspective, it's really about supply demand. We expect weak demand. But for supply, that's one area where it's not exactly easy to nail down to a specific answer. China and Asia, some of the competitors' product due to tariff may be priced higher or maybe the volume would go down. And that means in the short term, we'll be able to see better performance.

And during March, there were a lot of volumes that came into the market because people expected the tariff is going to become higher from April, and that is now being consumed at this moment. The next time when we expect this to turn to change is whether or not the retail side will start to pile up inventory towards October, looking at the year-end. But that negotiation is probably going to start in the next couple of months. And if there's going to be like a -- if there's going to be like a halt of supply coming from Asia, or if there's going to be a change in price, that's going to be a very favorable term for us.

The next thing we want to look at is the product mix. Basically, again, what's sold for builders versus trade, that's really for new houses. On the other hand, retail, that's really for the remodeling or renovation. And it goes back to what I mentioned earlier, but we're not really seeing housing being sold or volume of housing. It's not really flourishing. And that means there's less trade.

In other words, the product mix slice is going to deteriorate. And it's not that we're not finding any housing being built. Some of the houses for the more affordable people, yes, we're seeing that. But then we don't exactly have much high share in that space. So we do need to have the entire housing industry to recover. Otherwise, the product mix recovery would not -- we would not be able to enjoy in that short-term perspective.

So we do have good items, but the trade proportion, which is going to give us more contribution over the long run, that's something that we need to see contribution in next year. And it's not exactly something that we'd be able to do through our internal effort because it does have to do with the external effort. And it goes back to some of the questions that Teraoka-san asked earlier.

For example, projects, how much cost reduction we be find? Could be one factor behind whether or not we'll be able to see a better return. So in other words, in short term, what can we do, it's really about how much cost reduction we'll be able to achieve.

[Operator]

So next question is from CLSA Securities, Mochizuki-san.

[Masahiro Mochizuki, analyst]

This is -- from CLSA. Two questions. First question is just confirmation. No, you didn't change the forecast for the year. But when we look at the results from the first quarter, your sense against the plan, how did you progress against the plan?

And if you look at the progress in comparison to the last couple of years, I think, it has been quite good. But as against the plan, was it good, bad or what's your take on the progress?

[Unknown Executive]

Well, it was good. It was good progress, if I jump to the conclusion. So there were areas where better-than-expected result was achieved. And the article for the special provision. And so the housing starts increased at the end of March as the rush demand. But to what extent this will have impact for the full year? Well, in this regard, for Article 4 Special Provision as a consequence of approval being slow, I thought that April to June were not to be all that good, and we expect a gradual pickup from there. But there was a rush demand as a result of the Article 4, the Special Provision, and April, May for us were not bad at all. So this was somewhat unexpected positives with experience.

But in Europe, the color sold very strongly, as I've explained before. In other words, our product with higher added value sold. And the renovation ratio improved, SD&A didn't increase. So these were probably better-than-expected performances. So I think I would consider the first quarter result to be great.

And if we didn't have that, the unclarity going forward, we would have been able to say stronger remarks for the future, but the unclarity in U.S. is likely to have impact in other countries. So if China cannot export. So that could potentially impact our usage, leading to a decrease in the performance overall for Japan, too.

What will happen in terms of new housing starts going forward? It's difficult to read at this point in time. But what I can say for certain is that -- and -- so with renovation or remodeling, we are able to capture this more steadily overseas vis-a-vis new houses. And so that will be an area that we are going to focus more going forward. And so where it was good on this occasion, we'll try to make even further improvement so that we can add to numbers. That's what we are thinking of.

[Masahiro Mochizuki, analyst]

And the second question is in regards to the impact from the Trump tariff. Now in your explanation, and at the year-end, how much the retailers will purchase in terms of inventory? You said that there could potentially be an impact, but -- impact of the trend, the tariff. When would you start to see that showing your results? Is that the third quarter, or in around the fourth quarter? Well, probably the biggest would be October, November?

[Unknown Executive]

Now at that point in time, we are expecting this to show not as a quantity but as a product mix. So for us -- for us, so we are able to -- if we were in a situation to be able to demand a better product mix for us, that would be good.

As a pricing strategy, so we're expecting a 20% increase, but I suppose not clear. But what's the kind of pricing range? What assumptions should we take? Well it is kind of a complex equation here. But Asia and China to begin with, will they increase the price to match the increase in tariffs? Or will they -- like with the Japanese automotive manufacturing in the past, are they going to lower the price to try to not change the price all that much? We don't know.

But we should have more clarity towards August. Another factor, if Asia and China do not supply the volume then in the future, when Asia and China is able to supply the product in order to change the market environment, then from 2 piece main to 1 piece main by making that kind of effort for the product mix. So where we have been able to increase price in the past, if we are able to make them more permanent. That will be good. So if that's the case, we are able to achieve higher, the price increase.

But increasing price by making something that is more difficult. And to do that, I think will enable us to realize sustainable price increase, and that would lead to change in the market itself. And the China market, in fact, has many manufacturers right now. But market as a whole -- of course, the volume came down. But on the other hand, the pricing is changing in terms of the composition. And that's the kind of way we want to lead in the U.S. In China, it's a majority 1 piece toilet now.

[Operator]

We'd like to take the next question from SMBC Nikko, Kawashima-san.

[Hiroki Kawashima, analyst]

This is Kawashima from Nikko Securities. So I actually have two questions I'd like to raise.

My first question is about new housing build in Japan. So in Q1, how much was the rush purchase? And do you think there's going to be a negative rebound? Of course, it really depends. But you mentioned about June housing start. And you didn't really see so much of a comeback. And so whenever you see these events, do you think the standard itself is really going to go down? I mean we know that new housing build is really on a decline at this moment, but how do you see these ups and downs over the short term?

In other words, is that really going to change how you see the business itself? For example, for the [indiscernible] housing, you're going to exit from there, but is there going to be a little more revisiting required as we try to analyze this business? So how do you look at this business currently? And what do you expect in the future?

[Unknown Executive]

So first of all, how much delay are we going to see? Just generally speaking, it's usually like a month after where LHT results will be visible. For example, window or bathroom, usually, that will be ordered first. And then after that, water-related areas will be ordered for new house, usually like 2 or 3 months after.

But the inflation that we -- the increase that we saw in March, it was quite large. And so the speed of these housing builds, maybe it was a bit slower. So what we saw in March, did it all end in April and May? I don't know if this is something that we still have to see. But if we look at April June quarter, if we look at the revenue, it's not that it really -- it really is inferior. So April was high and a gradual decline from May and June. It's not that all in all, during that quarter, we saw a large decline. So it's not that we're expecting there's going to be another downfall from here.

Realistically, if we look at where we are, housing and the new housing is not flourishing, but it is stabilizing. And in the end, renovation is actually -- for example, water-related areas is doing well, more than expected, which is giving us a result where we are today. And frankly speaking, window renovation was lower. The performance was lower than expected -- our expectation. We're trying to implement some initiatives to ratchet this up.

Renovation proportion is something that we do want to increase. We have been shifting too much on the new housing build, and we're trying to shift more to renovation. And so compared to last year, it's like 1.7 percentage points increase in the renovation portion. At this point, we're trying to continue our works so that we'd be able to make up for the gradual decline in new housing through the renovation works.

And also, if we look at one each product, it really goes back to what Okada-san from Goldman Sachs asked at the very beginning. But renovation gross profit usually will be better, margin. And so again, as we try to control SG&A, as we try to utilize AI, we should be able to improve the margin itself. So -- and indirect cost needs to be lowered.

So the structural reform that we're trying to go through is to make sure we'd be able to do -- practice that way. And I think we've been able to make a good success -- progress thus far. And if we are going to find, for example, the new housing really dropped more, so is there anything else that we'd be able to do? We do have plans.

So at this point it's not that we, at this moment, feel that we'd have to get started on a new structural reform taking costs. We do have confidence that we should be able to keep up with some of the changes that may happen in Japan strictly speaking.

[Aya Kawai, executive]

This is Kawai from IR. Allow me to just follow up with some numbers. So in this material on Slide 18, we have a waterfall chart. And so if you look at the top part, we show domestic -- others, renovation -- or renovation below that, there's others. And so again, new housing has been affected by 1 percentage point. It's been improved from last year for both LWT and LHT.

Now on LHT side, there is -- it's still like minus 2% because we're seeing more impact from new house. But for example, there has been some impact coming from the abolition from that special proposition of Article 4. But other than -- so LWT that was minus 2, it was minus 3% for LHT. And so in Q1, we have been able to minimize the impact, and that's something that we've been able to see from the numbers.

[Hiroki Kawashima, analyst]

And one more question that I had is about GROHE. I think there was another person that talked about this, but I'd like to ask about the sustainability. So utilization, so I think you've been able to speak about that from last year. And Q2 and onwards, I think -- I guess from here of the change of the growth of revenue and profit is probably not going to be drastic as much as we saw in Q1.

But is it correct to understand that it is going to keep on? In other words, there's going to be increasing both revenue and profit from hereof? But do you think there's going to be a fluctuation depending on how color goes? So can you share with us what you expect?

[Unknown Executive]

All right. Honestly speaking, there are a lot of things that we still can't really say specifically, but some of the project base that we currently find, or some of the orders that we're hearing at this moment, so it is something that we're capturing in a sluggish economy. So it's not that we're expecting there's going to be a real growth in Q2. But from Q3 onwards, some of the advanced works on the project side, we're starting to see good signs.

Now how much change would that bring is probably going to be the point. And it is true. The current supply demand is not giving us much reason to say there's going to be much growth in Q2 or Q3.

[Operator]

Next question, from Jefferies Securities, Fukuhara-san.

[Sho Fukuhara, analyst]

Fukuhara from Jefferies Securities. I have two questions. The first question in regards to GROHE. So you've been talking about the profit margin, but in terms of GROHE, the presence in the market, also market share, the changes there from the previous year's fourth quarter to the first quarter this fiscal year, were there any changes there? That's the first question.

[Unknown Executive]

Well, market share has been increasing gradually from last fiscal year, particularly for shower and also on this occasion because of color, we have been able to increase our market share.

[Sho Fukuhara, analyst]

Can we expect similar type of trend going forward as well?

[Unknown Executive]

Well, of course, that is what we are expecting. So where we have lost market share, well, those companies who lost market share will try to regain them back. But for now, it's quite good. But for GROHE, it's not just Europe, but other region as well. So for example, in the Middle East, we are making a significant growth there right now. And here, in comparison to our competitors, I think our growth is quite prominent, particularly for the Near and Middle East.

For China, too, and other products or other brands and not just us, but they're all struggling, but GROHE is still growing. And Southeast Asia and India, in those markets, G4 of GROHE and we'll be launching G5 going forward. And we are receiving strong inquiries. So if we look at the situation for GROHE overall, seeing quite a strong performance across the board, except for the U.S.

[Sho Fukuhara, analyst]

My second question, the full year forecast, we have not changed this. But if we look at the image for the first half of the year versus the second half of the year, the first quarter was good, but decreased in the second quarter. But the third quarter, if we look at the quarterly trend, we may expect to see increase. So would we see the same seasonality this year that we used to see in the past?

[Unknown Executive]

That's a difficult question to answer as well. Conventionally, and if you look at the pattern over the last number of years, of course, there's been some fluctuation in numbers. So first quarter number one, second quarter two, third quarter #4 and the fourth quarter, zero, so that's the kind of profit breakdown. So well, -- and so we may have to change our forecast, if that is the case.

But because it's somewhat unclear there, we've not changed the forecast. So unfortunately, I'm not able to respond to your question directly, that's the actual situation. However, in terms of the third quarter, we do have expectations for things improving.

[Sho Fukuhara, analyst]

So put differently, the profit in the second quarter, is there a risk of this coming down significantly? Or that we don't have to be worried about that?

[Unknown Executive]

Well, for now, there is nothing to indicate that there could be such a concern.

[Operator]

So we have been able to answer all the questions from those who wish to ask questions. It seems like there are no further participants who would like to raise a question. So we'd like to end the Q&A session or -- we actually did have a button pressed.

Fukushima-san from Nomura Securities.

[Daisuke Fukushima, analyst]

This is Fukushima from Nomura Securities. Sorry, I know you were trying to end the session, but I'd like to raise my question.

So my first question is about the U.S. In Q1, it's $19 million loss, that's within your disclosure. So this $19 million, if we try to analyze this, so how much sanitary ware drop did you find? And I understand in toiletries there were some issues, but then within the sanitary ware, can you share with us how it performed?

[Unknown Executive]

Well, there's a lot of elements behind this. And so we hadn't been doing this per product analysis, so do spare us, but most part of the revenue really comes from American Standards ceramic products. If we try to analyze this by per product, I'm sure that's what we'll find. And of course, for bath faucets and showers, it wasn't that flourishing in terms of numbers this time around. But I guess from your question, I guess, I think it's fair to say most is ceramics.

[Daisuke Fukushima, analyst]

My second question is about on the ceramic siding business that you have exited. And that's already baked in within the numbers here. But this ceramic siding, how much loss did you find during a year? Was it like $200 million to $300 million? Or is that the amount of the positives that we'd be able to find next year? So that's my second question.

[Unknown Executive]

Do we have the number? So Fukushima-san, so we do disclose operating profit. I don't have the number at this moment. So we'll make sure that we come back to you, but it's a slight negative. It's not large. It's just a slight negative.

So this ceramics -- I don't think we -- this is about AT exterior. I think that's the way we call it. So when we say AT exterior, it's about ceramics, resin and metal. And when it comes to metal and resin, it's making profit, but ceramics was making a loss. And so that's exactly why we're going to exit from this business, but we don't exactly disclose the breakdown of the figure, just for the ceramics.

And so -- so you just heard [indiscernible] saying that we'd be able to give you the operating profit. So basically, it was breakeven. But sometimes, there will be some several hundred million positive and several hundred million negative. But if you just focus on ceramics business, the size of the loss was a bit larger than that.

And so again, the ceramics siding we decided to exit from this business. But for ceramics, even from the past, it was a tough business. We were struggling from before. And it was really because -- well, we're like #3 in this part of the space. But we are the only player that only have a factory in Kashima. So if we wanted to send it to the western part of Japan, we always had to suffer a loss. And that was really why we wanted to focus just on the business in East part of Japan instead of West. And so that sort of halved the revenue in the past 6 years.

And so we really had to ask, was this a sustainable business for us to begin with? And to go into a little more detail. Within the exterior business, ceramic siding is really about new housing build, but then resin and metal is also used in renovation. And so as we find new housing to go down, that means the ceramics siding, there was always the risk that we may have to suffer even further loss.

When it comes to metal and resin, for example, when we're trying to work on heat insulator, coating, paint was the only alternative. But we know for renovation and trying to use resin on it, this renovation part should give us a lot of positive. And so that is why we just wanted to split where we were making a loss.

[Kinya Seto, executive]

So we have responded to all of the questions that we have received thus far. In regards to some of the questions that we have received on this occasion, I've not been able to provide a straightforward response and I apologize for that. Now the numbers we are not disclosing. It's difficult to respond in terms of giving details about those numbers. Please understand for structural reform, as I've explained before, we planned it about 2.5 years ago and the structural reform that we had intended to undertake over the 2.5-year period, we have been able to complete them mostly.

Of course, if the environment changes in the future, there could be other things that we may have to do. But when it comes to Japan, in particular, from the past, on the assumption of demand coming down, we have been addressing this as required. So what was needed in terms of making changes or format, we have been able to create a platform upon which we are able to undertake our business without incurring large costs.

So I think we've come to a milestone in that regard as far as numbers are concerned. But where we still have unclarity is the United States. So how are we going to respond to the unclear situation in U.S.? So from our perspective, I must say that we don't have a full visibility there as yet. But we have been struggling, but we have undertaken this structural reform and the outcome we are starting to feel more confident about what we have been able achieve as a result.

[Operator]

Thank you I think we've been able to answer all the questions. And so with that, we'd like to end the Q&A session.

[Aya Kawai, executive]

And with that, I would like to end LIXIL Corporation. Q1 financial results for the fiscal year ending March 31, 2026. Once again, thank you very much for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]