Toyota Cuts Net Forecast as Yen Gains, Americans Snub Cars – Bloomberg

Posted: Thursday, August 04, 2016

Toyota Motor Corp. cut its fiscal-year profit forecast after net income fell in the first quarter, as cheap gasoline pushed U.S. demand away from its car line up toward trucks and a strong yen cut earnings from vehicles sold overseas.

Profit will probably drop to 1.45 trillion yen ($14.3 billion) for the year ending in March, Toyota said in a statement Thursday. Net income in the three months through June dropped to 552.47 billion yen, beating analysts’ estimates. The automaker based its latest forecast on yen at 102 against the dollar, compared with 105 it assumed in May.

Every Toyota and Lexus car model on sale in the U.S. for at least a year has posted sales declines this year, a trend putting scandal-tarred Volkswagen AG on course to surpass its Japanese rival as the world’s top-selling automaker. The yen strengthened about 11 percent against the dollar last quarter compared with the year-earlier period, making Toyota’s exports less competitive and cutting the value of repatriated earnings.

“It’s really disappointing for investors to see the downward revision at this point,” Koji Endo, an analyst at SBI Securities Co., said by phone. “They also lowered their yen assumption and they are more sensitive to the yen’s swings because they export more vehicles than” other Japanese automakers like Nissan Motor Co. and Honda Motor Co., he said.

After a three-year streak of foreign exchange rates boosting operating income, President Akio Toyoda said in May that currency tailwinds raised Toyota’s earnings above the level of its “true capabilities.” Toyoda, 60, is responding by reorganizing the car-making giant into smaller independent units, taking after the Lexus International luxury division carved out within the company four years ago. The aim is to speed up decision-making and respond more quickly to changes in demand.

  • Toyota’s revenue in the three months ended in June fell to 6.59 trillion yen, compared with analysts’ average estimate of 6.58 trillion yen
  • Operating profit for the quarter dropped to 642.2 billion yen, compared with analysts’ average estimate of 520 billion yen

The yen strengthened about 11 percent against the dollar last quarter compared with the year-earlier period, making Toyota’s exports less competitive and cutting the value of repatriated earnings.

“Things are moving so rapidly every day,” Tetsuya Otake, managing officer said at a press briefing on Thursday, lamenting big foreign exchange rate swings.

The introduction of the redesigned Prius hybrid late last year underscores the challenge Toyota’s having in responding to the whims of consumers across its biggest markets. In Japan, buyers have responded to the improved mileage and higher-tech interior by making Prius the top-selling model each month this year.

The reception in the U.S. is another story. Sales of the Prius sedan model have dropped 11 percent this year through July, and deliveries have plunged 26 percent for the broader line. Toyota said Wednesday it would postpone the start of sales for its Prius plug-in model to the winter, rather than begin Japan deliveries this autumn.

Low gasoline prices also are dragging on the usual stalwarts of Toyota’s car lineup, including the Camry sedan and Corolla compact. While the RAV4 and Highlander sport utility vehicles are pacing record light truck sales, weak car demand has outweighed light trucks’ strength. The company’s total U.S. deliveries have slumped 2.5 percent this year, trailing the industry’s 1.3 percent rise.

Production disruptions have added to Toyota’s challenges. The company said it lost output of about 80,000 vehicles due to earthquakes in Kumamoto prefecture in April, Japan’s most devastating since March 2011. Factories in Japan had already been trying to recover from having to shut down for a week in February due to an explosion and fire at a steel-making affiliate.

Toyota is responding by cutting costs. After Britain voted to leave the European Union in June and investors sought refuge in the yen as a haven currency, Toyota deactivated elevators and bathroom hand-driers and cut back on air conditioning at its offices in Japan.

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