Toyota, one of the world's largest automakers, is expected to report a fifth straight profit drop, with investors weighing the fallout from a Japan earthquake. The company will announce its financial results on August 4, and analysts are focusing on whether the carmaker will adjust its full-year outlook after sales losses, rising raw material costs and production stoppages.
Toyota's operating profit for the April-June quarter is expected to decline year-on-year. According to the average of eight analysts' estimates, operating profit is expected to be 1.11 trillion yen (about $7 billion), a 5% decline from the same period last year. Despite strong demand for hybrid vehicles, Toyota is struggling to offset cost increases and sales losses in some major markets.
Expected April-June operating profit, a 5% decline from a year earlier.
Toyota and Lexus global sales in the first quarter of the fiscal year fell 3% to just over 2.5 million vehicles. Sales in the United States grew only limitedly during the quarter and did not offset losses in China, the Middle East, Oceania, and Central and South America. Oceania sales fell 16% and Central and South America sales fell 5% in the quarter, while China sales fell 28% year-on-year.
The rapid growth of Chinese automakers in export markets is increasing competition in regions where Toyota has traditionally been strong. In China, the world's largest auto market, local electric-vehicle makers are growing with lower-priced, technology-focused models, increasing pressure on Japanese brands. Toyota is responding by developing China-specific electric models, but the impact on sales volume takes time. Declining demand for gasoline vehicles is dragging down Toyota's overall performance in China, and continued losses there are seen as one of the most important risks to its global sales and profit targets.
Toyota's Middle East sales fell by about a third in the same period. Regional conflicts in the Middle East directly affected consumer demand and vehicle shipments. The tensions also pushed up prices of production inputs such as aluminum and naphtha, increasing Toyota's energy and transport costs. Toyota previously warned that Middle East developments could create billions of dollars in pressure over the fiscal year.
Adding to the pressure, a 7.1-magnitude earthquake occurred in southern Japan. Toyota stopped production at four plants in Japan due to safety checks and parts supply problems; two of the plants carry out vehicle assembly. Production at three plants in Japan's Kyushu region is planned to be suspended until August 5, and at the Aichi plant in central Japan until August 7. One of the halted plants produces Lexus models; the other plants make hybrid-vehicle parts and engines.
Aisin, a key parts supplier to Toyota, suffered water-pipe damage at a plant near the earthquake's epicenter. No major structural or machine damage was found at Aisin's plant, but no clear timetable for full production resumption has been announced. About 200 people are working to restart the plant. A delay in parts production could prevent Toyota's assembly lines from operating even if its own plants are safe, since in the auto industry a missing single part can halt production lines of thousands of vehicles.
In the United States, Toyota's sales showed limited growth during the quarter, and the ongoing changeover of the best-selling RAV4 model creates a new risk. The gap between the end of old RAV4 production and sale and the redesigned model's market transition limited the pace of sales. Investors are watching for announcements on when new RAV4 production capacity and dealer deliveries will accelerate. US hybrid demand remains one of Toyota's strongest areas, but a prolonged model transition could delay growth that would offset China and Middle East losses.
Toyota forecasts operating profit of 3 trillion yen for the current fiscal year. Analysts are focusing on whether the company will change this forecast after sales losses, rising raw material prices and earthquake-related production stoppages. If Toyota's plants resume quickly, the earthquake's impact on earnings could be limited; if parts supply disruptions continue, the number of unproduced vehicles and financial losses could grow. The August 4 results will show not only last quarter's performance but also Toyota's resilience in the face of Chinese competition and supply-chain problems.
