Toyota posts 39% drop in Q1 profit

Automotive News | August 7, 2008 - 2:45 am EST

ENLARGE

U.S. sales of the Toyota Prius fell 3.9 percent through July vs. the same period of 2007,

TOKYO (Thomson Financial) — Toyota Motor Corp. said on Thursday its operating profit dropped 39 percent in the fiscal first quarter ending in June, from a year earlier. The company said this was due to slowing sales in the U.S. and Europe, higher purchasing costs of basic materials and a strong yen.

Toyota left its earnings guidance unchanged but still warned its operating profit will drop for the first time in nine years.

The company registered an operating profit of 412.59 billion yen ($3.8 billion), down from an operating profit of 675.43 billion yen ($6.17 billion) a year earlier. This was also the second straight quarter that its operating profit had fallen.

"The environment surrounding our business has taken a sharp turn for the worse, leading to a very tough first quarter," Executive Vice President Mitsuo Kinoshita told a news conference. "It will be crucial for us to act quickly and flexibly to overcome this."

Sales in North America dropped to 729,000 vehicles in the first quarter from 762,000, hit by a downturn in demand for trucks, which trimmed operating profit at the segment to just 1.6 billion yen ($14.6 million), from 146.8 billion yen ($1.34 billion) a year earlier.

The company also suffered from increasing defaults in its U.S. auto loan business due to the subprime loan problem, although Toyota started tightening its lending and screening since last autumn, while boosting provisions for writedowns at its leased vehicles segment by 9 billion yen ($82.2 billion).

A ‘challenging situation’ in North America

"The challenging situation in the North American market is likely to continue for the remainder of this year," Kinoshita said.

"Under such circumstances, we need to take action flexibly and promptly in order to improve profitability as we position the North American market as a growth market from a long-term viewpoint," he said.

Total vehicle sales decreased, despite strong sales in Russia and Eastern Europe, due to a slowdown in Western European markets, the carmaker said.

Toyota said it will launch new models in Europe that will continue to meet regional standards of CO2 regulations later this year and into next year to boost sales and generate profit.

For the quarter ended June, Toyota’s consolidated global sales rose to

2.186 million vehicles from 2.162 million, led by brisk sales in Asia and the Middle East.

The Toyota group includes mini-vehicle maker Daihatsu and truck manufacturer Hino Motors.

For the full year to March 2009, the company has forecast a net profit of 1.25 trillion yen ($11.4 billion), an operating profit of 1.60 trillion yen and revenue of 25.0 trillion yen ($228 billion), in line with guidance in May.

"Toyota kept its guidance unchanged by factoring in a weaker-than-expected yen and thereby masking the impact of a deteriorating sales outlook," UBS Securities analyst Tatsuo Yoshida said. "Excluding the forex factor, Honda is in a better state than Toyota."

Toyota hopes to offset any extra costs for raw materials by cutting costs.

The automaker now forecasts full year global sales of 8.74 million vehicles, down from the previous forecast for 9.06 million units.

By region, it aims to sell 2.63 million vehicles in the U.S., down from the earlier projection of 2.77 million vehicles, while planning to sell 2.17 million vehicles in Japan, down from the earlier forecast of 2.2 million units.

Toyota plans European sales of 1.29 million, down from 1.39 million seen previously, and sales of 1.06 million in Asia, down from the earlier forecast of 1.10 million units.

It also expects sales of 1.59 million in ‘other’ regions, including the Central America and the Middle East, down from an earlier projection of 1.60 million units.

Shares suffering

Shares of Toyota, the world’s most valuable automaker worth $143 billion, have lost about a quarter of their value so far this year, in line with Tokyo’s transport subindex.

Before the results, Toyota ended down 1.3 percent at 4,580 yen. The subindex fell 0.6 percent.

"I don’t think these numbers are going to put much pressure on the stock price," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"The fact that they’ve not revised down their full-year estimates is a big point, I think. The first-quarter numbers are within expectations and beat low-end estimates."

Reuters contributed to this report