Toyota Motor Corp (7203.T) cautiously nudged up its profit forecast, underscoring how vulnerable Japan's biggest company is to the firm yen and a tepid sales recovery that are weighing on its shares.
In the first half of the business year, the world's top automaker had been rescued by Japan's generous incentives favoring the hybrid segment it dominates and managed to keep its domestic factories humming at a reasonable rate.
But part of the government's stimulus ran out in September, meaning Toyota's sales in Japan would likely drop 25 percent in the second half, an executive said on Friday.
A stronger yen has compounded the problem, making exports from Japan less competitive and less profitable. Toyota ships out about half the vehicles it produces in Japan, compared with about 30 percent for Honda Motor Co (7267.T).
"I don't want to think about how we are going to protect production levels in Japan if the current forex levels continue," Executive Vice President Satoshi Ozawa told a news conference.
Toyota is now assuming an average dollar rate of 82 yen for the second half -- slightly more favorable than the current rate of about 80.70 yen.
"I think Toyota's growth will be slower than total industry volumes given the high fixed costs for its domestic business and since their manufacturing base is skewed toward places like Japan and Canada where the currency is currently strong," said Nomura Securities auto analyst Masataka Kunugimoto.
"That makes it difficult to remain competitive and leads to lower market share in developed markets such as the U.S. and Europe. That is one of the reasons Toyota's growth is significantly slower than the rest of the pack," he added.
For the year to March, Toyota now expects operating profit of 380 billion yen ($4.71 billion), up from its previous forecast of 330 billion yen but short of the average 495.6 billion yen forecast by 21 analysts polled by Thomson Reuters I/B/E/S.
The maker of the Prius hybrid lifted its net profit forecast to 350 billion yen from 340 billion yen.
Toyota's tame forecast revisions contrast with those of Nissan Motor Co (7201.T), which lifted its guidance past consensus figures a day earlier, sending its shares up 6 percent on Friday.
Toyota shares have fallen 5.8 percent in the past three months, faring worse than most other Japanese auto stocks and Tokyo's main Topix index .TOPX, which lost 3.5 percent.
SAVING JAPAN
Toyota President Akio Toyoda has vowed to focus more on improving Toyota's quality checks and customer satisfaction and less on sales volumes as he aims to steer the company founded by his grandfather back from a debilitating recall crisis.
But the damage still lingers, especially in China where rivals say Toyota is leading the escalating price wars.
Toyota's sales fell in both China and the United States last month, bucking an expansion in the world's two biggest markets where rivals such as Hyundai Motor Co (005380.KS) and Volkswagen AG (VOWG_p.DE) are closing the gap.
In the United States, its most important market, Toyota (TM.N) was alone in reporting a drop in sales last month, although Executive Vice President Yukitoshi Funo said that was due to especially strong sales in the year before.
While Toyota has managed to shed the massive post-Lehman losses, Toyoda now faces the daunting task of saving its export-dependent Japanese operations, which are reeling under a near record-high yen.
"President Toyoda has given us a mission to do everything we can to keep a domestic production level of at least 3 million units a year," Toyota's Ozawa said.
"In order to protect the Japanese economy, and Japanese jobs, I feel that is something we need to do."
In contrast to the higher group-based profit forecasts, which include Toyota's overseas operations, the company lowered its parent operating profit forecast for the second time, by 60 billion yen to 490 billion yen citing currency losses.
"The (dollar) is around 80 yen, so (with their new assumption) foreign exchange could still be a negative factor for them," said Kazutaka Oshima, president of Rakuten Investment Management in Tokyo.
For July-September, Toyota's group operating profit soared 92 percent to 111.5 billion yen, but lagged the average 142 billion yen estimated by four analysts surveyed by Reuters.
Second-quarter net profit, which includes earnings made in China, was 98.7 billion yen, more than quadrupling from 21.8 billion yen a year earlier.
Toyota nudged up its annual global sales forecast to 7.41 million units from 7.38 million, saying stronger demand in Asia will offset weaker sales in North America.
Toyota ended up 1.9 percent at 2,964 yen before the results were announced on Friday, lagging most other auto stocks and the broader market.
