Toyota: Forex Saves the Day

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While sales in China, Russia and the Middle East are growing faster than anticipated, Toyota and other automakers face a downward sales spiral in North America, Western Europe and Japan, a weaker dollar that drags on earnings, and dearer raw materials.


For the year through March 2009, Toyota kept its forecasts for a net profit of 1.25 trillion yen and operating profit of 1.6 trillion yen, down almost 30 percent from last year and the first fall since 2002.

Fundamentally, the unchanged forecasts entail a downward revision as Toyota now assumes a more favorable yen exchange rate, at 105 to the dollar and 161 to the euro instead of 100 yen and 155 yen. That would have boosted operating profit by 280 billion yen except Toyota said the gain would be lost through weaker sales.

Toyota cut its 2008/09 global sales forecast to 8.74 million vehicles from 9.06 million, with reductions in all major markets: North America, Japan, Europe and Asia. Kinoshita said a sales goal of 10.4 million vehicles in 2009 would be revised in a few weeks' time.

"Toyota kept its guidance unchanged by factoring in a weaker-than-expected yen and thereby masking the impact of a deteriorating sales outlook," UBS Securities analyst Tatsuo Yoshida said. "Excluding the forex factor, Honda is in a better state than Toyota."

Toyota hopes to offset any extra costs for raw materials by cutting costs.

Consensus forecasts from 19 brokers predict annual net profit of 1.34 trillion yen and operating profit of 1.7 trillion yen.

Drivers looking to make fuel savings have pushed up sales of Toyota's Prius hybrid, Yaris compact and other fuel-efficient models but Toyota has been unable to build them fast enough, losing out on potential sales.

But Toyota's Detroit rivals have far bigger worries.

General Motors (GM.N: Quote, Profile, Research, Stock Buzz) last week reported a $15.5 billion quarterly loss -- its third-biggest in over a century -- while Ford Motor (F.N: Quote, Profile, Research, Stock Buzz) posted its worst-ever loss of $8.7 billion. In Europe, BMW (BMWG.DE: Quote, Profile, Research, Stock Buzz) and Daimler (DAIGn.DE: Quote, Profile, Research, Stock Buzz) have both warned of lower annual earnings.

Shares of Toyota, the world's most valuable automaker worth $143 billion, have lost about a quarter of their value so far this year, in line with Tokyo's transport subindex .

Before the results, Toyota ended down 1.3 percent at 4,580 yen. The subindex fell 0.6 percent.

"I don't think these numbers are going to put much pressure on the stock price," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"The fact that they've not revised down their full-year estimates is a big point, I think. The first-quarter numbers are within expectations and beat low-end estimates."

(Additional reporting by David Dolan and Yumiko Nishitani, Editing by Ian Geoghegan and Rodney Joyce)

This article was originally published on 2008-08-07
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