Tuesday, August 2, 2011

Toyota cautious on forecast after quake hits results

Toyota Motor Corp raised its annual profit forecast to a level well below market estimates, warning the stronger yen was hobbling it in the battle against South Korean rivals as it races to restore quake-hit production.
Toyota slumped to a first-quarter loss in April-June after the March 11 earthquake and subsequent tsunami all but halted production, crippling sales both at home and abroad.
But the loss was smaller than investors feared and the world's largest automaker said supply chains were recovering quickly, enabling it to raise its full-year operating profit forecast by half, to 450 billion yen ($5.9 billion).
"Toyota has shown that it is recovering well from the quake, but its upward revision is below market expectations," said Hideyuki Suzuki, general manager of investment market research at SBI Securities in Tokyo.
"Their currency assumption is lower than the actual rate and with the U.S. economy faltering, there's going to be pressure on the yen to rise further. Automakers risk a double punch of a high yen and weak demand," he added.
Toyota's annual operating profit forecast, which excludes earnings from China, is up from previous forecast of 300 billion but still short of the 530 billion yen consensus in a poll of 20 analysts by Thomson Reuters I/B/E/S.
Even before the March disasters and the yen's recent surge, Toyota had been trying to slash costs by roughly 30 percent to take on South Korea's Hyundai Motor Co, which has steadily gained market share.
Toyota executives have said that building as many cars as it does in Japan was illogical from a pure profit standpoint, but have stopped short of flagging a politically sensitive shift overseas.
"I think that in some ways, our history has been defined by a constant battle against currency swings and it's made us stronger," Senior Managing Officer Takahiko Ijichi told a news conference, lamenting the absence of decisive action by the Japanese government against the rising yen.
"But this (dollar) level below 80 yen, of 76 yen, and the speed of the yen's rise is way beyond the limit."
Ijichi said Toyota would try to fight the yen's strength by buying more parts overseas -- a move that he warned could indirectly shift Japanese manufacturing overseas through the component supply chain.
Toyota would also aim to raise product prices wherever possible, he said, but admitted that would be difficult against tougher competition in many markets.
"In the past, when we faced a strong yen we were competing in cost mainly against other Japanese brands," Ijichi said. "Now, things are different."
With the dollar around 15 yen weaker than it was early last year, a $20,000 car sold in the United States would give Toyota $3,000 less in gross profits, Ijichi said.
Still, Ijichi said Toyota intended to defend its market share in the United States, its single-biggest market, through a new model launches, bigger sales to fleet customers and by raising incentives.
"By next March, we expect to gain back the market share we had before the quake," he said.
Toyota said it now assumes a dollar rate of 80 yen instead of 82 yen this year and the euro at 116 yen instead of 115 yen. On Tuesday, the dollar was trading around 77.35 yen while the euro was around 110.25 yen.
"Toyota will try hard to make up for lost time," said Lee Yong-jik, a fund manager at Pine Bridge Investment in Seoul, expecting aggressive marketing as Toyota launches new models such as the revamped Camry due soon in the United States. "But in terms of currencies, Toyota is still at a disadvantage to Korean rivals."
The yen has strengthened by almost half against the won over the past three years.
Toyota builds about 40 percent of its vehicles in Japan, exporting more than half of that, making it more vulnerable to a strong yen than domestic rivals Nissan Motor Co and Honda Motor Co. Both Nissan and Honda reported a profit for the April-June quarter.More...

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