Feb 8th - Toyota Lifts FY View, But Oct-Dec Net Profit Drops 39%

A little more than a year after a massive recall threatened to run it off the road, Toyota Motor Corp. predicted its net profit would jump in the current fiscal year ending in March thanks to strong sales overseas and extensive cost-cutting.

But Toyota also revealed in its results for the latest reporting period that it, like its Japanese rivals, is still being dogged by a stronger yen and a slump in domestic auto sales.

The world's biggest auto maker by sales Tuesday boosted its net profit projection to Y490 billion ($5.97 billion), up 40% from its previous estimate in November and more than double the Y209 billion it earned last year.

"The fact that we were able to raise our forecast indicates that our cost-cutting efforts have exceeded our own expectations," Toyota senior managing director Takahiko Ijichi said at a press conference following the earning release. "We think that shows we're back on the road to recovery."

However, the company also said that in the October-December quarter its net profit slid 39% to Y93.63 billion from Y153.22 billion in the same period a year earlier on the back of lower sales volumes in several key markets and persistent strength in the Japanese currency.

Toyota has raised its full-year profit outlook for three straight quarters, up from an initial estimate of Y310 billion back in May. The revised number for the year ending in March is still far below that of Honda Motor Co., which expects a Y530 billion profit for this fiscal year, but above that of Nissan Motor Co.'s Y270 billion estimate. Nissan reports its latest earnings on Wednesday.

Despite its steadily improving profit outlook, Toyota's income is still only at levels it reported more than a decade ago. Its targeted net profit of Y490 billion represents about 30% of a record Y1.718 trillion Toyota posted in the fiscal year ended in March 2008. Before the global slowdown that year, which forced Toyota into the red in March 2009, it hadn't posted net profit below Y500 billion since March 2000.

For Toyota, home is where it hurts most. Whereas the auto maker expects to boost overseas production by 7% on the year to 4.36 million vehicles by March 31, it sees domestic production falling 1.4% to 3.16 million vehicles. The company's exposure to Japan, where it dominates nearly half the market, has become a major drag on profitability amid shrinking Japanese demand for cars and Toyota's commitment to maintaining a domestic production base of at least 3 million vehicles a year.

A surge in the yen over the past year has made it difficult for Toyota to export more cars, which would lessen the slack in domestic production capacity. Akio Toyoda, the company's president and grandson of Toyota's founder, has indicated that the auto maker cannot profitably export compact cars when the yen is worth less than Y90 to the dollar.

While sales volume fell in three of its largest markets--Europe, Japan and North America--during the three months from October, profits rose in all markets except Japan. For the full year, Toyota expects sales to be flat or higher in all markets including Japan, where the rebates had helped boost sales until their cut off in September. In particular, the company pointed to high demand for its cars in emerging markets as far afield as South Africa and Thailand--which Ijichi called a pillar of the company's future growth strategy.

To cope with the strong yen and weak domestic sales, Toyota is trying to extract more profits where it's most competitive. "We are trying to raise prices selectively, sell more higher profit margin vehicles and produce more in the markets where our sales are growing fastest," Ijichi explained.

In the quarter ended December, Toyota's revenue declined 12% to Y4.673 trillion from Y5.293 trillion and operating profit sagged 48% to Y99.07 from Y189.11 billion.

For the full fiscal year, the Japanese auto giant expects to see an operating profit of Y550 billion and sales of Y19.200 trillion. These projections are better than its previous forecast for an operating profit of Y380 billion and sales of Y19.000 trillion.

Toyota's earnings estimates for this fiscal year are based on its company's expected average yen rate for the year of Y86 to the dollar and Y112 to the euro.

Ijichi also said Tuesday that his company "welcomes" the planned merger between steel giants Nippon Steel Corp. and Sumitomo Metal Industries Ltd., which was announced last week. He said the proposed deal represents the birth of a global major that could be an effective partner as Toyota expands its operations around the world.