LIXIL Pricing Spineometer: 4 of 5 Vertebrae

LIXIL, a plumbing fixtures, building materials, and housing equipment company, had a mixed Q1 2025. Revenue rose 2.8% to JPY 369 billion (~$2.5 B) and earnings before interest and taxes fell 83% to roughly zero over the same period last year.

A review of LIXIL’s 30 July 2024 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

Remarks made by Kinya Seto, CEO of LIXIL, were delightfully straightforward compared to those made by peer CEO’s in the States. From his remarks and earnings presentation, his perception of the business situation was eminently clear.

• LIXIL is a low-margin business highly dependent on input costs and customer demand, somewhat perceived as a company operating near perfect competition rather than a company that manages brands and benefits from monopolistic competition.
• Currently, LIXIL is undergoing structural reforms in production factories, sales offices, and sales personnel.  The purpose of these reforms is to enable LIXIL to earn profits across economic cycles by reducing overhead thus enabling the company to financially perform in both sluggish and good markets.
• The trajectory of demand varies widely between geography.  For instance, in plumbing fixtures, sales are recovering in Europe but the States remain sluggish. Meanwhile, in APAC, the Indian market is reportedly strong while the Chinese market is again sluggish.
• Demand also exhibits different shifts between trade and retail, between homebuilders and home remodelers globally.
• Input price fluctuations of copper, required for plumbing fixtures, impact the prices of their offerings.  To address issues like this, price optimization is underway in plumbing for Japan, which has so far covered the raw material cost increases.
• Other areas where pricing may lead to greater financial performance can be identified with new products.  Kinya Seto stated, “In the case of our products, housing equipment and building materials, once a certain product is launched, the profit margin on that product gradually declines over a long period of time. Therefore, the profit margin cannot be maintained or improved without new products.”

Industry benchmarks suggest LIXIL would optimally have 21 to 105 professionals dedicated to pricing.

• Several professionals would be dedicated to product pricing to support product managers in their efforts to manage the wide variety of existing products and offerings of LIXIL.
• Other pricing professionals would assist product managers in pricing new products.
• Index pricing may be used to help manage prices in reaction to input cost impacts for some products.  This approach requires analysts and statistical analysis to properly define the indices and anticipated price impacts.
• Competitive price intelligence would meaningfully inform pricing for retail sales and have some use in trade pricing.
• With trade sales, where many products may be sold at one time to a builder, price negotiation may lead to unanticipated variances.  Transactional price analysis leading to meaningful price negotiation guidance and profit-aligned sales incentives would improve price capture in these negotiations.
• Measures of industry elasticity and cross elasticity would meaningfully inform market-level demand expectations, thus enabling production planning and contingency planning.
• Given the variety of geographic, channel, and offering markets LIXIL serves, pricing software and pricing managers would meaningfully enable better pricing decisions using statistics and machine learning.

Research into the investment by LIXIL in pricing yielded encouraging results.

• The number of professionals dedicated to pricing is within industry benchmarks and appears distributed globally aligned with LIXIL’s geographic footprint.
• Titles of pricing professionals ranged from associate, analyst, manager, director, and controller implying that, for at least some lines of business, pricing has meaningful management decision-making power.
• Pricing professionals can be identified with the parent company LIXIL as well as with many major brands such as American Standard and GROHE.
• The roles of pricing professionals were heavily associated with analysis yet also included brand protection.
• Other professionals in sales, marketing, and finance also contributed to pricing decisions.

Given the importance and capability of pricing at LIXIL as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of September 2024.

LIXIL Pricing Spineometer: 4 out of 5 Vertebrae. LIXIL has several professionals dedicated to pricing yet their organization appears suboptimal.  Better coordination of price management between markets and offerings as well as a clearer professional development path that does not require the transfer to sales, marketing, or finance for advancement would both attract stronger talent and deliver greater results without a change in headcount.

JSGRY (LIXIL Corp.) fell slightly from 23.7 the day prior to their earnings call to 22.4 one week later. FY 2024 revenue of JPY 1,496 billion (~$10 billion) with a 1.7% operating margin and P/E ratio near 52.

For FY 2024, a 1% improvement in price would yield a 58% improvement in operating profits holding all else constant at LIXIL.