Toyota: Forex Saves the Day
TOKYO (Reuters) - Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz), the world's biggest automaker, posted a 28 percent drop in quarterly net profit, dented by a strong yen and slumping U.S. sales, and kept its forecasts unchanged for what is set to be its most challenging year in recent memory.
"The environment surrounding our business has taken a sharp turn for the worse, leading to a very tough first quarter," Executive Vice President Mitsuo Kinoshita told a news conference. "It will be crucial for us to act quickly and flexibly to overcome this."
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.
Toyota last month cut its 2008 global production and sales forecasts and outlined plans to mothball North American factory lines building light trucks such as the Tundra pick-up, which the carmaker had called its most important product ever for the United States when it was launched last year.
A slump in demand for gas-guzzlers amid record high fuel prices has also forced automakers in the United States to set aside big provisions for a slide in the resale value of the unpopular vehicles.
Toyota said it booked provisions of 9 billion yen -- significantly lower than Nissan's 42 billion yen and less than half what Honda set aside -- saying the resale value of its vehicles had suffered less than those of its rivals. Toyota's April-June net profit was 353.66 billion yen ($3.2 billion), down from a record 491.5 billion yen a year earlier but higher than an average estimate of 319.5 billion yen from seven brokers surveyed by Reuters Estimates. It was the first fall in April-June profit in three years.
Operating profit, which excludes earnings in China, fell 39 percent to 412.6 billion yen -- lagging a consensus estimate of 432.8 billion yen. Revenue fell 4.7 percent to 6.2 trillion yen.
In its most important North American market, operating profit excluding derivatives gains at its finance business plunged to a paltry 1.6 billion yen from more than nine times that a year earlier as Toyota sold fewer vehicles -- especially bigger, higher-profit models -- used more sales incentives and set aside provisions for bad loans.
FOREX SAVES THE DAY
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)
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