Wednesday, August 4, 2010

Toyota cautious after 1Q profit top forecasts

TOKYO: Toyota Motor Corp's biggest quarterly profit in two years and a hike in its annual forecasts failed to allay concerns about the strength in the yen, weak margins and a faltering US market.

Toyota joined rival automakers from Ford Motor Co to Hyundai Motor Co which have also posted forecast-beating quarterly results, but executives have been united in their cautious view of the global economy for the rest of the year.

Toyota's new guidance for operating profit to total ''330 billion (RM12.19 billion) in the year to March 31, 2011, is still far short of a consensus ''526.5 billion in a survey of 21 analysts by Thomson Reuters I/B/E/S.

"The prospect of an economic slowdown in North America is the biggest concern for Toyota," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"Its first-quarter results were solid but its upgrading of its fiscal year forecast was below consensus, so they are keeping a cautious stance."

Toyota, the world's largest automaker, said earnings were boosted by strong profits at its finance division and warned it was anticipating a tough second half for sales, while costs would also rise.

After the financial crisis hammered car demand globally, Toyota has been plagued with excess production capacity, putting pressure on margins.

The crisis that forced Toyota to recall more than 10 million vehicles for problems with unintended acceleration and braking issues compounded those woes, costing the company billions of dollars and tarnishing its image.

President Akio Toyoda has vowed to put the recall debacle that has monopolised his first year as chief executive behind him, calling 2010 a fresh "starting line" for the 73-year-old company founded by his grandfather.

But in the coming quarters, Toyota is set to get the double blow of crumbling domestic sales and a stronger-than-assumed yen, which makes exports less competitive and reduces the value of profits made overseas.

Toyota expects to export around 60% of its Japan-made vehicles this year ' a higher ratio than at rivals Honda Motor Co and Nissan Motor Co.

Toyota kept its dollar assumption at ''90, a figure described by some analysts as agressive, but cut its euro forecast to ''112 versus ''125.

"There's a lack of visibility regarding currency movements and it's difficult to predict how big an impact the end of Japanese subsidies will have," senior managing director Takahiko Ijichi told a news conference.

"We're factoring in a big impact on profits from weaker volumes in the second half."

Japan's incentives to replace old cars with fuel-efficient ones have shored up domestic production in the past year, but those subsidies will expire in September. Toyota has been a major beneficiary since the subsidies favour hybrid cars like its best-selling Prius.

And with a US sales recovery looking slower than anticipated, Toyota has said it may be a few years before its operations in Japan could break even.

Toyota's US sales in July slipped 3%, albeit from strong results a year earlier, and trailed a 5% rise in overall sales, data on Tuesday, Aug 3 showed.

For the April-June quarter, the maker of the Corolla sedan reported an operating profit of ''211.7 billion thanks to a sharp rise in vehicle sales, swinging from a loss of ''194.9 billion a year ago.

Toyota is still suffering from the impact of its safety recalls, with profit margins also under pressure because of higher sales incentives to attract US customers. It said it wanted to cut US sales incentives by 10%-20% in the coming months.

Toyota's first quarter margin was 4.3%, compared with Nissan's 8.2% and Honda's 9.9%.

First-quarter net profit, which includes earnings made in China, was ''190.5 billion, compared with a loss of ''77.8 billion a year earlier.

Shares of Toyota have fallen about 22% in the year to date, faring worse than Tokyo's main TOPIX index, which lost 17% in the same period.

Toyota's shares closed down 1.6% before the results were announced on Wednesday, against a 2.1% fall in the broader Tokyo market. ' Reuters

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