Toyota's profit dives 25%

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Toyota's Profit Falls More Than Estimated on Yen (Update3)

 

By Naoko Fujimura and Tetsuya Komatsu

 

May 8 (Bloomberg) -- Toyota Motor Corp., the world's second-largest automaker, posted a steeper drop in quarterly profit than analysts estimated and said earnings this year will fall 27 percent on the yen's gain and declining U.S. sales.

 

Net income fell 28 percent to 316.8 billion yen ($3 billion) in the three months ended March from 440 billion yen a year earlier, Toyota said in a statement today. That was lower than the 375.2 billion yen median of six analyst estimates compiled by Bloomberg. Sales rose 3.8 percent to 6.57 trillion yen.

 

Toyota, Honda Motor Co. and Mazda Motor Corp. all predict profit will drop this year as the yen's gains against the dollar erode the value of sales in North America. President Katsuaki Watanabe forecasts sales of Corollas, Avalons and other vehicles in the region to drop 6.4 percent this fiscal year amid a "severe business environment.''

 

"The slowdown in the U.S. really hit Toyota,'' said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which oversees $28 billion in assets. "The market has yet to hit bottom.''

 

The Toyota City, Japan-based company's shares fell 18 percent in the three months on the Tokyo Stock Exchange, the largest quarterly drop in more than six years. The shares declined 1.8 percent to 5,480 yen at the close of trading today before the earnings were released.

 

Profit Drop

 

The carmaker predicts net income to drop to 1.25 trillion yen in the year started April 1, from a record 1.72 trillion last year. Operating profit may fall 30 percent to 1.6 trillion yen. The stronger Japanese currency will probably trim 690 billion yen from operating profit, the company said.

 

Toyota based its earnings forecast on exchange rates of 100 yen to the dollar and 155 yen to the euro compared with 114 yen to the dollar and 162 yen to the euro last fiscal year. Every 1 yen gain against the dollar and euro trims Toyota's annual operating profit by 40 billion yen and 6 billion yen, respectively, the company said today.

 

"It's now time to readjust our structure after having years of constant growth,'' Watanabe said at a press conference in Tokyo. "It's a golden opportunity to eliminate waste'' in the company.

 

The overall U.S. market dropped 8.1 percent in the three months ended March 31. The price of regular gasoline gained 8 percent to $3.29 a gallon in the period and cost $3.62 a gallon as of yesterday.

"I expect more bad news from the industry,'' said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $2 billion in assets. Still, "Toyota should come through this period stronger and better'' because of its lead in gasoline-electric hybrid technology.

April Sales

 

In April, Toyota boosted U.S. retail sales for the first time in five months on demand for the Yaris and the Prius. U.S. drivers are picking fuel-efficient Toyota models over General Motors Corp. and Ford Motor Co. pick-ups because of record fuel prices.

 

GM reported a first-quarter loss of $3.25 billion last month because of deteriorating performance in North America. The Detroit-based carmaker was profitable in every other region. Ford reported a surprise profit for the quarter as earnings from Europe offset losses in North America.

U.S. Outlook

 

Demand for fuel-efficient vehicles, particularly in the U.S., has helped Toyota boost net income every year since it began reporting under U.S. accounting standards in the year ended March 2004. This calendar year, rising job insecurity may cause auto sales in the U.S. to slump to the lowest since 1995, according to Standard & Poor's.

 

Toyota will delay opening its eighth North American factory, Senior Managing Director Takeshi Suzuki told reporters in Tokyo. The company originally planned to start production of the Highlander sport-utility vehicle at the plant by 2010, it said last year.

 

The carmaker forecasts its North American sales will drop to 2.77 million vehicles this fiscal year from 2.96 million last year. Global sales will rise about 1.7 percent to 9.06 million vehicles for the period. Sales in China will rise 36 percent to 640,000 vehicles this fiscal year.

 

Toyota's budget for research and development will fall 4 percent to 920 billion yen. Its capital spending will also drop 5.4 percent to 1.4 trillion yen. The company will raise its annual dividend by 17 percent to 140 yen a share from 120 yen.

 

Higher Prices

Toyota plans to raise prices for models including the FJ Cruiser sport-utility vehicle, Yaris compact and Prius hybrid by as much as 2.1 percent in North America later this month to help offset rising materials costs.

 

Nippon Steel Corp. and JFE Holdings Inc., Japan's two biggest steelmakers, raised wholesale sheet steel prices 25 percent last month to cover an unexpected tripling in annual coking coal prices. They are seeking a further 10 percent increase as early as June, traders familiar with price talks said on April 22.

 

Nissan Motor Co., Japan's third-largest automaker, is due to give its forecast and fourth-quarter earnings on May 13.

 

To contact the reporter on this story: Naoko Fujimura in Tokyo at [email protected]; Tetsuya Komatsu in Tokyo at [email protected].

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