Toyota closes in on record profit with healthy U.S. sales

Toyota Motor Corp. today raised its annual profit forecast, closing in on records set before the Lehman crisis as the weaker yen and growing sales in a healthy U.S. market sharply boost earnings.

The company also nudged up its North America sales forecast to 2.63 million vehicles from 2.61 million.

Toyota now expects 1.67 trillion yen ($16.95 billion) in net profit for the year ending in March 2014, compared with a previous forecast of 1.48 trillion yen. That is just short of the record net profit of 1.72 trillion yen Toyota booked in the year ended in March 2008.

Toyota, the most export-reliant among Japan's three big carmakers, has benefited the most from a weakening yen that boosts profits both from exports and from converting money made overseas back into yen.

The company expects higher North America unit sales to offset a drop in its Asia sales forecast to 1.64 million vehicles from 1.7 million. The global consolidated sales total, excluding China and some other regions, was unchanged at 9.1 million.

Toyota boosted its annual capital expenditure outlook by 2 percent to 940 billion yen, or about 4 percent of its revenue. It kept its r&d expenses forecast for the year at 900 billion yen.

"Our basic stance of controlling fixed costs and improving gross profit will not change, but we do need aggressive investment in order to brush up on future technology," Managing Officer Takuo Sasaki said during an earnings briefing today.

Q3 profit increase

For the July-September quarter, Toyota said net profit rose 70 percent to 438.4 billion yen. Its quarterly net profit gain outperformed rivals Nissan Motor and Honda Motor. Last week, Nissan posted a 2 percent quarterly net profit growth as U.S. sales growth underperformed its rivals and due to sluggish sales in some emerging markets, while Honda booked a 46 percent rise, boosted by strong U.S. sales.

In North America, Toyota reaped 79.6 billion yen in operating profit last quarter, increasing from 65 billion yen a year earlier. In the United States, deliveries rose 12 percent in the period as the weaker yen gave Toyota room to offer higher incentives for its best-selling Camry model. The company outsold Ford Motor Co. for the first time in 15 quarters.

Bottoming Europe

Operating profit in Europe more than doubled to 20.1 billion yen, amid mounting signs that the region is recovering from its record six-quarter recession. In September, European car sales rose the most in more than two years.

"The story is the market has bottomed in Europe," said Ashvin Chotai, managing director of Intelligence Automotive Asia in London. "So there are no more declines, but certainly you can't expect strong growth."

In Asian markets -- excluding Japan -- operating profit slipped to 91.4 billion yen, dragged down by a slump in demand in Thailand. Toyota's deliveries plunged about 30 percent to 96,000 units in the Southeast Asian country as government rebates ended for first-time car purchases.

"Toyota is a market leader in Southeast Asia so there's much stronger headwinds for them," said Chotai. "The outlook in Thailand will remain quite weak in the next 12 months mainly due to the lack of pent-up demand. It's also certainly hard to be optimistic about Indonesia -- it's a market which is always gonna be volatile."

Fast-paced China

Toyota sales in China, the world's largest auto market, rose at the fastest pace in five quarters as it rebounded from last year, when nationwide protests erupted in opposition to Japan's purchase of a group of islands claimed by both countries.

"There's some room for upward surprise in China, as long as there's no escalation of tensions," Chotai said. "The overall market is growing faster than people expected in the beginning of the year so the pie is bigger. Still, for Japanese carmakers there's a long road ahead."

The yen's benefits were most visible in Toyota's earnings from Japan, the company's biggest export base. Operating profit from its home country more than doubled to about 374 billion yen.

"The weak yen and cost-cutting are the two main reasons for Toyota's recovery in profit in Japan compared with a year earlier," said Issei Takahashi, a Tokyo-based auto analyst at Credit Suisse Group. "They should be able to maintain the current profit level if the currency rate remains stable."