Tags: Toyota | Profit | Outlook | earnings

Toyota Raises Profit Outlook on Quake Recovery as Hyundai Gains

Tuesday, 02 Aug 2011 09:00 AM

Toyota Motor Corp., Japan’s largest automaker, raised its full-year profit forecast by 39 percent, capping industry earnings that point to a faster-than-expected recovery from the record March 11 earthquake and tsunami.

Toyota today raised its net income forecast for this fiscal year to 390 billion yen ($5 billion) from an earlier forecast of 280 billion yen, compared with net income of 408 billion yen last fiscal year. Sales may rise to 19 trillion yen, higher than the estimate of 18.6 trillion yen made June 10.

Toyota’s revised outlook came a day after Honda Motor Co. raised its profit forecast 18 percent in the aftermath of the magnitude-9 temblor that damaged parts factories and power plants. Nissan Motor Co. also beat analyst estimates with first- quarter net income of 85 billion yen, and it may consider revising its forecast after the second quarter, Corporate Vice President Joji Tagawa said July 27.

“The Japanese carmakers are recovering more quickly than earlier expected,” said Tadashi Usui, an analyst at Moody’s K.K. in Tokyo. “The challenge post-recovery is how competitive they can be in this very difficult operating environment.”

Toyota said profit in the fiscal first quarter, the period most affected by the disasters, plunged 99 percent. The maker of the Prius hybrid car reported net income of 1.16 billion yen for the three months ended June 30, compared with the average of six analysts’ estimates for a net loss of 68.6 billion yen.

Hyundai Advantage

“Because of the quicker recovery, we’ve been able to push up our production and sales plans,” Senior Managing Officer Takahiko Ijichi said in Tokyo today. “We are working to improve our profit structure globally so that we can better last year’s result even if it’s just by the slightest margin.”

Global vehicle sales dropped 33 percent to 1.22 million in the three months ended June 30, the automaker said. Sales plunged 48 percent in North America and 42 percent in Japan. Deliveries in Asia, excluding Japan, fell 9 percent to 259,000 units.

The difficulties for Japanese carmakers are compounded by the yen’s surge against the dollar and South Korean rival Hyundai Motor Co.’s increased production to take advantage of Japanese factory shutdowns.

Hyundai’s second-quarter profit gained 37 percent to 2.3 trillion won ($2.2 billion). Its U.S. market share rose to 5.1 percent this year through June from 4.6 percent last year, while Toyota and Honda have lost ground, according to Autodata Corp., a Woodcliff Lake, New Jersey-based research company.

Yen Strength

“Hyundai was a strong competitor even before the quake, and the disaster gave it even more of an advantage to expand sales,” said Yoshiaki Kawano, an analyst at consulting company IHS Automotive. “Toyota is recovering at a faster-than-expected pace, but it needs to introduce its new models as soon as possible to compete with Hyundai.”

The strength of the Japanese currency, which is close to a post-World War II high, cuts the value of repatriated earnings from exports. The yen gained 11 percent against the dollar in the April-June quarter from a year earlier and traded at 77.18 yen today.

A 15-yen change in the exchange rate over the past year has “blown off” 300,000 yen, or $3,900, in profit on a $20,000 car, Ijichi said.

“Frankly speaking, losing 300,000 yen per vehicle is a real drag,” he said.

Recovery Phase

A stronger yen cut Toyota’s fiscal first-quarter operating profit by 50 billion yen, the company said today. Toyota is basing its full-year forecasts on 80 yen to the dollar and 116 yen to the euro.

The carmaker is struggling to compete with Hyundai, South Korea’s largest carmaker, which benefits from the weaker won and local labor costs that are half of those in Japan, Ijichi said.

“We now face many strong competitors, including our neighbor, Hyundai, which it makes it more difficult than before to raise prices,” he said.

Toyota expects to enter a production recovery phase in September, one month earlier than previously announced, it said today. The carmaker raised its full-year production target to 7.72 million units, compared with a June forecast for 7.39 million.

Toyota is hiring as many as 4,000 temporary workers in Japan to make up lost production. It plans to introduce an updated Camry sedan, the best-selling car in the U.S., later this year and increase incentive spending to regain market share in its most profitable market, Ijichi said.

Output Disruption

The company’s vehicle sales in the U.S. dropped 18 percent in the fiscal first quarter from a year earlier, and its market share slipped 3.4 percentage points in the period, according to auto industry researcher Edmunds.com.

Toyota and Honda are also losing ground in China, the world’s largest auto market. Toyota’s sales dropped 20 percent in the April-June quarter, while Honda’s fell 27 percent. Nissan’s deliveries gained 23 percent and Hyundai’s increased 8.3 percent.

All of Toyota’s Japan plants were halted until March 28, when the company restarted limited output of Prius and Lexus hybrid models. Production at all domestic factories resumed April 18 at half capacity.

Cut Costs

Toyota expects to lose 150,000 units in global output because of the March earthquake, compared with an earlier estimate for 450,000 units, Ijichi said. Short supplies of critical parts -- particularly semiconductors, rubber and plastic materials -- have hampered the recovery.

Shares of Toyota fell 0.3 percent to 3,160 yen at the 3 p.m. close of trading in Tokyo, before the earnings announcement. The stock has dropped 13 percent since March 10, the day before the earthquake.

President Akio Toyoda is committed to maintaining production of about 3 million vehicles a year in Japan to avoid job cuts. To do so, Toyota aims to cut production costs by 20 percent and focus domestic output on advanced-technology models such as hybrids and high-margin Lexus cars, Toyota Executive Vice President Atsushi Niimi said last month.

“On a pure cost comparison, we definitely lose the race” against Hyundai, Ijichi said. “But I still think our production technology, vehicle development infrastructure and supplier foundation keep us a head above the rest globally.”

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Toyota Motor Corp., Japan s largest automaker, raised its full-year profit forecast by 39 percent, capping industry earnings that point to a faster-than-expected recovery from the record March 11 earthquake and tsunami.Toyota today raised its net income forecast for this...
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