Bloomberg News

Toyota Forecasts 31% Drop in Full-Year Profit After Quake

June 10, 2011

(Updates with comment from analyst in third paragraph.)

June 10 (Bloomberg) -- Toyota Motor Corp., Japan’s largest carmaker, forecast a surprise drop in profit after the nation’s record earthquake disrupted production and sales while the yen strengthened.

Net income may fall to 280 billion yen ($3.5 billion) in the 12 months ending March 31 from 408 billion yen a year earlier, the Toyota City-based company said in a statement today. That compares with the 422 billion yen average of 13 analyst estimates compiled by Bloomberg in the past 28 days.

Declining global sales may erode full-year earnings by 120 billion yen, Toyota said, after the magnitude-9 temblor and tsunami on March 11 damaged parts factories and power plants, disrupting auto output in Japan and abroad. Even as the carmaker works to restore production by the end of this year, it also needs to catch up with rivals such as General Motors Co. and Volkswagen AG in emerging markets including China, said Tatsuya Mizuno, a director at Mizuno Credit Advisory in Tokyo.

“They need to make that shift of focusing on emerging markets as soon as possible to make any profits,” Mizuno said.

Global vehicle sales may drop to 7.24 million this fiscal year from 7.308 million last year, Toyota said in the statement.

Revenue may decline to 18.6 trillion yen from 19 trillion yen a year earlier, Toyota said.

Operating profit may drop to 300 billion yen from 468 billion yen, it said. The earthquake and tsunami in March reduced the figure by an estimated 360 billion yen, Toyota said.

Production Recovery

Toyota rose 0.9 percent to 3,300 yen at the 3 p.m. close of trading in Tokyo before the announcement. The stock has declined 9.6 percent since March 10, the day before the earthquake.

The carmaker expects global production to recover to normal levels by November or December, Chief Financial Officer Satoshi Ozawa said today in Tokyo, reiterating a previous forecast. About 30 parts used in Toyota vehicles are still in short supply, he said.

“Toyota will do its best to recover from the delays in delivery,” he said.

Koji Endo, an analyst at Advanced Research Japan in Tokyo, said Toyota’s production is expected to grow “greatly” in the second half of the year.

“The forecast was conservative,” Endo said. “The company may revise up the forecast after the second quarter.”

Yen Strength

The carmaker, which is basing this year’s profit forecast on an exchange rate of 82 yen to the dollar, said the stronger Japanese currency may cut profit by 100 billion yen. The yen gained 15 percent in 2010 and soared to a postwar high of 76.25 per dollar on March 17. A stronger yen reduces Toyota’s repatriated earnings from overseas.

Toyota, which built 45 percent of its cars in Japan last year, may need to produce more abroad because of the yen’s strength, Ozawa said last month.

While Toyota President Akio Toyoda has said he wants to protect jobs and Japan’s manufacturing culture, the automaker’s profitability is suffering with the yen close to a post-World War II high and German and South Korean rivals benefiting from weaker currencies and free trade agreements. The currency and the impact of Japan’s record earthquake contributed to Toyota’s fourth-quarter profit falling 77 percent from a year earlier, the company said in May.

Chairman Toshiyuki Shiga of the Japan Automobile Manufacturers Association called for the government to “urgently correct” the appreciation of the yen, according to a statement posted on the association’s website on June 8.

Toyota’s ratio of domestic production is higher than Japanese rivals. Nissan Motor Co. made 25 percent of its vehicles in Japan last fiscal year, while Honda Motor Co. produced 26 percent of its cars at home.

--With assistance from Chua Kong Ho in Shanghai and Takako Iwatani in Tokyo. Editors: Chua Kong Ho, Terje Langeland

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net


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