Japan carmakers to ride sales rise, yen to rosy third quarter

Toyota Motor Corp. and Honda Motor Co. are likely to post double-digit profit growth for the latest quarter on strong sales and a weaker yen, while Nissan Motor Co. is seen stalling on tepid demand.

The domestic Japanese market offered a mixed bag of sales data for October-December, with popular 660cc minicars lifting Honda while reining in Toyota, but both continued to increase sales in the more profitable Western markets.

Solid vehicle exports from Japan to meet voracious demand overseas also worked in Japanese automakers' favor as the yen slipped further, especially against the euro.

"We can't expect the kind of big boost from the dollar's rise as we did in the first half, but the euro continued to strengthen," said Atsushi Kawai, auto analyst at Mizuho Investors Securities. "The rise in raw material costs also seems to have abated, so the third quarter is likely to be solid."

The dollar rose around 1 yen to an average 118 yen in October-December compared with the third quarter a year earlier, while the euro spiked to an average 152 yen from around 140 yen.

Both currencies have gained more than 3 percent since, with the dollar trading in the high 121 yen area and the euro fetching more than 157 yen.

Analysts said that left plenty of room for Toyota and Honda to lift their full-year profit projections since both have assumed a dollar rate of 115 yen and euro of 145 yen for the second half.

The same goes for Suzuki Motor Corp., which expanded sales almost everywhere in the world. The compact-car maker is assuming even more conservative currency rates of 112 yen to the dollar and 142 yen to the euro for the second half.

Consensus estimates from four to five analysts have operating profits for the third quarter growing by double-digit percentages at Toyota, Honda, Suzuki, and Mazda Motor Corp.

NISSAN FALLS SHORT

The exception to another rosy quarter for Japanese automakers will again come from Nissan, which looks almost certain to miss its profit target as the roll-out of new models failed to reverse a sales slide as management had predicted.

Nissan's third-quarter retail sales in Japan fell around 3 percent, while they rose less than 1 percent in North America, where the company had flagged a significant gain. In Europe, sales plunged by 26 percent, in stark contrast to double-digit jumps at Toyota and Honda.

"There has been insufficient time for the new product to have an impact on earnings," CLSA Asia-Pacific Markets analyst Christopher Richter said, predicting a 6 percent drop in quarterly operating profit.

An average of five estimates has the profit falling 0.4 percent, in what would mark the first earnings contraction in the seven years under the watch of CEO Carlos Ghosn.

Still, analysts expect an upturn at Nissan from the current quarter with full contribution kicking in from the launch of the high-volume Altima sedan, the Infiniti G35 and new Qashqai SUV in Western markets.

Honda, which overtook Nissan as Japan's second-biggest vehicle producer last year, kicks off the earnings season for the top makers on Wednesday, Jan. 31. Suzuki reports on Thursday, Feb. 1; Nissan on Friday, Feb. 2; Toyota on Feb. 6 and Mazda on Feb. 8.