Toyota reports 4.6% y/y growth in net profit during Q1 FY 2014/15, revises sales, production plans

Toyota today (5 August) released its financial results for the first quarter (April-June) of fiscal year (FY) 2014/15, which ends in March next year. The automaker's consolidated net profit during the quarter rose 4.6% year on year (y/y) to a record JPY587.8 billion (USD5.7 billion). Operating profit increased 4.4% y/y to JPY692.7 billion, thanks to cost-reduction efforts and favourable currency exchange rates in the form of a weak yen, which together boosted operating profit by JPY70 billion. Revenues during the quarter increased by 2.2% y/y to nearly JPY6.4 trillion, as consolidated unit sales increased by 9,426 vehicles, or 0.4% y/y, to 2,241,285 vehicles. Commenting on the results, Toyota's managing officer, Takuo Sasaki, said: "In addition to cost-reduction efforts and favourable foreign exchange rates, valuation gains and losses mainly from interest-rate swaps were positive factors. However, changes in model mix and increases in expenses impacted us negatively."

In Japan, vehicle sales during the quarter decreased by 19,950 units to 505,827 units, while operating profit decreased by JPY90.1 billion or 19.8% y/y to JPY365.9 billion. In North America, vehicle sales increased by 21,753 units to 710,409 units, while operating income, including the impact of valuation gains/losses from interest rate swaps, increased by JPY82.8 billion or 100.2% y/y to JPY165.5 billion. In Europe, vehicle sales totalled 207,481 units, an increase of 14,970 units, while operating income increased by JPY5.6 billion or 106.5% y/y to JPY10.8 billion. In Asia (excluding Japan), vehicle sales totalled 385,376 units, a decrease of 9,490 units, while operating income increased by JPY6.2 billion or 6.0% y/y to JPY110.3 billion. In other regions (including Central and South America, Oceania, Africa, and the Middle East), vehicle sales totalled 432,192 units, an increase of 2,143 units, while operating income decreased by JPY8.4 billion or 19.9% y/y to JPY34.0 billion.

FY 2014/15 guidance

Toyota has kept its forecasts for FY 2014/15 unchanged from those announced in May. The automaker projects revenues of JPY25.7 trillion (flat y/y), operating income of JPY2.3 trillion (up 0.3% y/y) and net income of JPY1.78 trillion (down 2.4% y/y), based on average exchange rate assumption of USD1:JPY101 and EUR1:JPY136.

Revised CY 2014 sales and production targets

Toyota also issued fresh group-wide (including Daihatsu and Hino) global production and sales targets for calendar year 2014. It now expects to produce 10.42 million vehicles globally (up 3% from 2013 levels), with output of 4.23 million vehicles in Japan (down 1% from 2013) and 6.20 million overseas (up 6%). The automaker aims to sell 10.22 million vehicles group-wide globally (up 2% from 2013 levels), with 2.27 million units in Japan (down 1%) and 7.95 million units overseas (up 4%).

Outlook and implications

Toyota's stronger-than-expected results for the first fiscal quarter come as sales of its sport utility vehicles (SUVs) surged in the United States, offsetting shrinking demand in Japan due to April's consumption tax hike, the first in 17 years. Toyota is outpacing a growing US new vehicle market that is headed toward its best year since 2006, buoyed by recovering payrolls and low interest rates. The company's US deliveries climbed 11% y/y in April-June, beating the wider industry's 6.9% y/y rise.

In May, Toyota reported its all-time high operating profit for FY 2013/14, eclipsing the previous record set six years ago just before the start of the global financial crisis, helped mainly by a weaker yen and record global sales of more than 10 million vehicles, making it the first automaker ever to achieve this feat (see Japan: 8 May 2014: Toyota's FY 2013/14 profits reach all-time high on weak yen and solid sales in Japan, North America). The record performance, although short of Toyota's internal targets, came despite an uncharacteristically weak final quarter (January-March 2014) that halted a string of eight consecutive quarterly gains for the automaker. Back then, Toyota predicted another record year on an operating basis in the 12 months to March 2015, although it saw a 2.4% fall in net profit for the period, mainly on slumping domestic sales following the consumption tax increase on April 1. However, the fallout has been less drastic than expected, with the overall Japanese new vehicle market (including minivehicles) contracting just 1.9% in Apri-June, significantly lower than the 16% plunge predicted for this FY by the Japan Automobile Manufacturers' Association (JAMA) in March. Toyota, which sells about one-fourth of its vehicles in Japan, posted a 5.1% y/y drop during the quarter.

Toyota's record net profit for the April-June quarter was about 30% higher than closest rival Volkswagen's EUR3.19 billion (USD4.4 billion) and surpassed the combined earnings at General Motors (GM), Ford, Nissan, and Honda. Toyota said last week that its global group vehicle sales reached a record 5.09 million units in the first half of 2014, making it the world's best-selling automaker in the period for the third consecutive year (see World: 30 July 2014: Toyota leads global H1 automotive sales).

In the second half of 2014, two crucial vehicles are awaiting to be unleashed for the world's largest automaker. In September, Toyota plans to begin selling a reworked Camry to deliver a boost to what has been the top-selling car in the US market for the last 12 years. The Camry widened its lead in the US market over Honda's Accord, Nissan's Altima, and Ford's Fusion during the first half, posting a 7.2% y/y gain. Toyota's Lexus luxury brand last week began Japan sales of the NX crossover, which is positioned beneath the RX SUV. The model is scheduled to be rolled out in November in the US, where the Lexus brand is fast catching up with Mercedes-Benz and BMW. Prospects look bright in Europe, where Toyota is outpacing industry growth this year as car demand recovers from a two-decade low reached in 2013, with Toyota registrations rising 6.8% y/y in the first half, according to the European Automobile Manufacturer's Association. The Chinese market, where Toyota's first-half sales rose nearly 12% y/y to about 465,900 units, also augurs well as the automaker seeks to boost sales of Corolla and Levin compact cars with locally made hybrid parts, a move that helps avoid a 25% tariff levied on imported vehicles. It is notable that Toyota lags behind Volkswagen and GM in China, which now accounts for about 10% of Toyota's global sales with 2013 volumes hitting 917,500 units. Toyota requires a cautious view on some of the emerging Asian markets, like Thailand, which are expected to drag down its earnings for the full FY (see Thailand: 30 July 2014: Toyota sees 2014 Thai sales falling 25.8% y/y, overall market projected to drop 30.9% y/y).