Global Insight Perspective | |
Significance | Toyota’s global spread means that stagnation in one region can be countered by increases in its other markets. |
Implications | Even if the market in the United States should slow significantly, it is unlikely that it will seriously dent total global sales. |
Outlook | Toyota’s own forecasts appear to be on the conservative side, and subsequent results are likely to exceed its estimates. |
Toyota Motor has published its consolidated financial results for the first half of the current fiscal year (FY) covering April to September 2007. They show that net revenues rose by 13.4% year-on-year (y/y) to ¥13.01 trillion during the period, while operating income increased by 16.3% y/y to ¥1.27 trillion. Unconsolidated income before taxes and interest amounted to ¥1.36 trillion, concluding in a consolidated net profit of ¥942.4 billion, an improvement over the same period last year of 21.3%. Although the company gained an additional ¥330.0 billion in operating income, some ¥150 .0 billion of this was due to favourable foreign currency exchange-rate changes. Also included in this increase in operating income was ¥130.0 billion from marketing and ¥50.0 billion for cost-reduction programmes.
Categorised by region, in Japan operating income grew by 13.0% y/y to ¥773.3 billion, representing 60.2 % of the total. North America provided 19.8% of the operating income, increasing by just 1.4% to ¥244.1 billion. The Asian region, excluding Japan, provided 9.1% of operating income, but the amount improved dramatically compared to last year, growing 90% to ¥116.7 billion. The European markets were relatively stable, operating income increasing by 3.5% to ¥66.0 billion, representing 5.3% of the total figure. The remaining markets, which include Central and South America, Oceania, and Africa, also contributed a relatively low proportion to the total figure, around 5.6%, but exhibited the fastest growth in operating income. For these markets operating income almost doubled to ¥71.7 billion.
Toyota retains Japan as its main production hub, so movements in regional sales figures do not necessarily reflect the changes in regional financial results. For the domestic Japanese market, despite the improvement in the first-half fiscal results, sales fell back by 67,000 units to 1.006 million units during the period. The company recently reduced its sales target for the 2007 calendar year from 1.72 million units to 1.65 million units. However, the company exports around 60% of its domestic production, and by planning its production schedules it can maintain output at its domestic plants even as local demand falls. The Lexus LS has proven to be a strong export seller while also being well received in the home market.
North American sales, comprising 35% of total sales, rose by 2.25% y/y to 1.464 million units, while the European market grew faster, by 7.8% y/y, resulting in total first-half sales of 635,000 units, making up 15% of the total. Toyota identified strong sales in Russia of the Lexus range, the Camry, and the Corolla as being of particular interest. Asian sales grew by 18.3% y/y to 452,000 units, representing 11% of the total. Sales in China have been growing well, notably of the Lexus. The remaining markets spread across Central and South America, Oceania, and Africa comprised 17% of the total, sales there growing by 11.6% y/y to 711,000 units. The company attributed this to steady sales of the IMV series and the redesigned Camry.
Outlook and Implications
Toyota is looking to make further improvements in its results by continuing to raise sales and pursue cost reductions. The company has revised upwards its forecasts for the full fiscal year ending in March 2008. Whereas the company had been expecting FY sales to reach 8.89 million units, it has now revised this to 8.93 million units. As a result, the forecast for consolidated net revenue has been increased from ¥25.0 trillion to ¥25.5 trillion. Similarly, operating income is now expected to come in at ¥2.3 trillion rather than the original estimate of ¥2.25 trillion, and net profit is expected to be ¥1.7 trillion, not the ¥1.65 trillion that was first projected. A survey by Reuters concludes that Toyota is still being conservative in its estimates. The consensus among analysts suggests that the final operating profit will reach ¥2.5 trillion and net profit ¥1.8 trillion. Equally, Global Insight anticipates that global sales will exceed the company’s estimate, perhaps reaching 8.96 million units.