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TOKYO — Toyota Motor Corp posted a bigger-than-expected 28 per cent drop in quarterly net profit due to a stronger yen and sliding U.S. sales, and forecast its first annual profit decline in seven years.
The world's biggest auto maker is expanding rapidly in China, Russia and the Middle East to try and counter a slowdown in the mature markets of the United States, Japan and Western Europe.
But a fall of more than 10 per cent in the U.S. dollar against the yen in the past year, a weak U.S. auto market and rising commodity prices are outweighing its growth in global sales and efforts to contain costs.
The maker of the Yaris subcompact and Prius hybrid expects this year's net profit to sink 27 per cent to 1.25 trillion yen ($12-billion U.S.), its first fall since 2002, and operating profit to decline 30 per cent to 1.6 trillion yen.
Toyota
Consensus forecasts from 19 analysts were for net profit of 1.56 trillion yen and operating profit of 2.0 trillion yen.
Analysts said the outlook would weigh on Toyota's shares, which had rallied as much as 15 per cent since touching a near three-year low last month.
“The operating profit forecast for this year is way below what the market expected,” said Tatsuo Yoshida, an analyst at UBS Securities. “If you consider that management had said just three months ago that it would try to increase profits at a 105-yen dollar, this is a major turnaround.”
Toyota is now assuming an average exchange rate of 100 yen to the dollar and 155 yen to the euro for this business year. The dollar averaged around 114 yen last year and the company says each 1 yen gain against the dollar cuts annual operating profit by about 40 billion yen.
January-March net profit was 316.8 billion yen, well below an average estimate of 342.3 billion yen from 20 brokerages surveyed by Reuters Estimates.
Operating profit, which excludes its Chinese joint ventures, fell 31 per cent to 396.7 billion yen, while revenues rose 3.8 per cent to 6.57 trillion yen.
Net profit for the year to March rose 4.5 per cent to a record 1.72 trillion yen.
Analysts also honed in on Toyota's lacklustre outlook for group-based vehicle sales to grow just 1.6 per cent to 9.06 million vehicles globally.
“What concerns me is their vehicle sales forecast,” said Yoku Ihara, general manager at Retela Crea Securities. “Up to now they've managed growth of 4-to-5 per cent, and for this year the forecast is for around 1 per cent. If you look at just North America, they're expecting a fall.
“The key this term is going to be how the story unfolds in the United States, as well as forex.”
Toyota President Katsuaki Watanabe said a recovery in the U.S. economy was unlikely this year, adding that record high fuel prices were hitting sales of bigger vehicles such as pickup trucks and SUVs.
“It's difficult to expect a recovery this year,” he said.
While Toyota is struggling to keep up with demand for the fuel-efficient Prius, it has scaled back production of light trucks and increased profit-eroding sales incentives to work down bloated inventory levels.
Other Japanese auto makers are also suffering.
Honda Motor Co. last month projected an 18 per cent drop in 2008/09 net profit. Nissan Motor Co. is due to announce its results next Tuesday.
Higher prices for inputs such as steel and platinum are trimming margins, while derivative losses related to lower U.S. interest rates have also dented earnings at Toyota and others.
On the upside, Toyota – a latecomer to China – is now beating the industry in growth in the world's second-largest car market.
It said it expects sales at its Chinese joint ventures to rise 36 per cent to 640,000 vehicles this business year. Toyota does not include sales at the joint ventures in its tally for global sales because it does not hold majority stakes in them.
Toyota is seeking to replicate those gains with a new low-cost car currently under development for the fast-growing Indian and Brazilian markets, where it lags rivals such as Volkswagen AG and Suzuki Motor Corp Toyota shares are down about 9 per cent this year, faring better than Tokyo's transport sub-index ITEQP, which is down 12 per cent over the same period.
Its market capitalization of about $180-billion is almost as much as Volkswagen and Daimler AG combined.
