Toyota's Q3 FY 2013/14 net profit grows more than fivefold y/y, full FY forecasts revised upwards

Toyota today (4 February) released its financial results for the fiscal third quarter and the fiscal year's first nine months, ending on 31 December 2013. Group net profit grew more than fivefold year on year (y/y) to JPY525.4 billion (USD5.16 billion) in the third quarter (October–December) of fiscal year (FY) 2013/14, compared with just less than JPY100 billion in the corresponding quarter of the last fiscal year. The group's operating profit surged nearly 382% y/y to more than JPY600 billion, on sales revenues of JPY6.6 trillion during the quarter, up nearly 24% y/y. For the first nine months (April–December) of FY 2013/14, Toyota's net profit more than doubled y/y to over JPY1.5 trillion. The automaker reported an operating profit of nearly JPY1.86 trillion during the period, also an increase of more than 200% y/y. Major factors contributing to the surge in operating income include favourable currency fluctuations worth JPY800 billion, cost reduction efforts worth JPY210 billion, and marketing activities worth JPY140 billion. Group-wide vehicle sales for the nine months totalled 6,784,523 units, an increase of 155,041 units from the year-earlier period. Commenting on the results, Toyota's managing officer, Takuo Sasaki, said: "In addition to the positive impact of the weaker yen, our operating income increased due to marketing efforts such as increased vehicle sales and cost reduction activities through collaboration with our suppliers."

A regional breakdown of Toyota's unit sales during April–December 2013 reveals that sales fell nearly 1.6% y/y to 1.64 million units in Japan, while those in Asia (excluding Japan) contracted more than 5% y/y to 1.2 million vehicles. In North America – its biggest market – Toyota sold more than 1.96 million vehicles during the nine-month period, a rise of more than 5% y/y. In Europe, sales improved by nearly 4.5% y/y to around 630,000 units. In all other regions (Central and South America, Oceania, Africa, the Middle East), Toyota sold a combined 1.35 million vehicles, up 10% y/y.

Full-year outlook revised upwards

Toyota has revised upwards its earnings outlook for the full FY that ends in March 2014 – the third such rise in as many quarters. Toyota has raised its net profit forecast by JPY230 billion to JPY1.9 trillion and its operating profit projection by another JPY200 billion to JPY2.4 trillion. The automaker has also raised its revenue projection by as much as JPY500 billion to JPY25.5 trillion. To arrive at these new forecasts, Toyota has assumed exchange rates in January–March to stay at JPY100:USD1 and JPY140:EUR1. Toyota maintains its group-wide sales estimate for FY 2013/14 at 9.1 million units, which was announced last November. Commenting on the forecasts, Sasaki said: "Our upwardly revised forecast is due to progress in our recent profit improvement activities through cost reduction and marketing efforts, in addition to the change in our assumption of foreign exchange rates to reflect the depreciation of the yen."

Outlook and implications

The stronger-than-anticipated third-quarter FY 2013/14 results, the eighth straight quarterly gain for Toyota, came as the automaker continued to benefit from a weaker yen and improving sales in North America after posting similarly robust results in the first half of the FY (see Japan: 6 November 2013: Toyota's H1 FY 2013/14 net profit surges 82.5% y/y, full-year guidance revised upwards). The results underscore how Toyota is leading the surge in Japanese corporate earnings after Japanese prime minister Shinzo Abe's anti-deflationary economic policies helped weaken the yen about 18% against the dollar in the past year, giving exporters a competitive edge over global rivals. The yen, which fell below JPY100:USD1 for the first time in four years last May, is projected to weaken further to JPY110:USD1 by the end of 2014. Every one-yen decline apparently boosts operating income by about JPY40 billion at Toyota, compared with JPY15 billion at Nissan, the companies said in May 2013. The yen's benefits during the third quarter of FY 2013/14 were most visible in Toyota's earnings from Japan, the company's biggest export base, where the automaker's operating profit surged more than 20-fold to JPY331.3 billion. In North America, Toyota reaped an operating profit of JPY112.5 billion during the quarter versus a loss for the corresponding period a year earlier.

Toyota's financial prowess is improving every year thanks to the introduction of new models and structural reforms, as well as favourable external factors. The automaker reported an operating profit of JPY1.32 trillion during FY 2012/13 – more than triple the JPY355.6 billion it posted in FY 2011/12 and the first time it had breached the JPY1-trillion mark since its all-time high of JPY2.27 trillion during FY 2007/08, just before the global financial crisis erupted. Last year, Toyota became the first automaker ever to produce more than 10 million vehicles globally on a group-wide basis, while its sales also climbed to an all-time high, prompting it to set even loftier targets for 2014 (see World: 23 January 2014: Toyota Group achieves 2% global sales growth in 2013, expects to break 10-mil.-unit barrier during 2014). Toyota's overseas sales are being driven by the world's top two markets – China and the United States. Toyota sold 917,500 units in China last year, a 9.2% increase over 2012, as it recovered from the consumer backlash triggered towards the end of 2012 by the Sino-Japanese territorial dispute over islands in the East China Sea. Toyota is expecting its Chinese sales to exceed 1.1 million units this year, counting on the new Vios and Yaris sedans that are tailored for Chinese consumers. In the US market, Toyota sold more than 2.23 million units in 2013, a 7.4% rise, leaving it behind only General Motors and Ford. The Camry fended off competition from Honda's Accord, Nissan's Altima, and Ford's Fusion to remain the top-selling US car for a 12th consecutive year last year. This year, Toyota's US sales will probably increase by 100,000 units, helped by new or updated models including the Corolla, RAV4, and Tundra, according to Jim Lentz, head of Toyota's US operations. Profits this FY are also expected to be propelled by an anticipated rush in Toyota's domestic sales during the final quarter, before a rise in consumption tax in April. Toyota, however, is facing slower-than-expected growth in Southeast Asia, its biggest regional market after North America and Japan, mainly owing to a seemingly prolonged political unrest in Thailand, the largest regional economy, and government policy swings in Indonesia.

The latest results, largely in line with industry expectations, have helped push Toyota's earnings outlook for the full FY to record levels. If Toyota's new earnings projections come to fruition, that would eclipse the company's previous all-time high posted in FY 2007/08 and would make it the first among Japan's top-three automakers to surpass record earnings witnessed before the outbreak of the global financial crisis. Toyota, which consolidated its position as the world's top-selling automaker after narrowly outpacing General Motors and Volkswagen for the second straight year in 2013, is zooming way ahead of its nearest rivals in terms of profitability.