Bloomberg News

Toyota Supplier Denso May Fail to Boost Forecast on Yen

August 30, 2011

(Updates with closing share price in the final paragraph.)

Aug. 30 (Bloomberg) -- Denso Corp., Toyota Motor Corp.’s biggest auto parts supplier, said the strong yen is undermining its recovery from the March 11 earthquake and may prevent the company from raising its full-year profit forecast.

Denso raised its half-year net income forecast on Aug. 1 to 9 billion yen ($117 million) from 1 billion yen on a faster- than-expected recovery and cost-cutting efforts while leaving its full-year forecast unchanged. The yen trading at 76.71, near a postwar high, is stronger than its estimate that the Japanese currency will average 81 yen to the dollar for the full year.

Denso, which makes car air-conditioners, engine parts and electronic control units for most global carmakers, is hiring 1,200 temporary workers as it helps Toyota make up for weeks of factory shutdowns. The strong yen cuts the value of repatriated earnings from exports, which make up about 20 percent of Denso’s Japan production.

“Because of the super-strong yen, manufacturing in Japan is placed in a very difficult position,” Denso President Nobuaki Katoh said in an interview on Aug. 24 at company headquarters in Kariya, Aichi prefecture. “The negative impact of the yen is offsetting our increase in production.”

Every one yen gain against the dollar cuts Denso’s operating profit by 2.9 billion yen, the company said.

Denso is expected to post 113.4 billion yen in net income for the full year ending in March, according to the average of 15 analyst estimates compiled by Bloomberg, compared with the company’s forecast of 98 billion yen.

Supplying Toyota

The partsmaker’s production returned to year-earlier levels in July, in time for Toyota’s Aug. 23 introduction of its revamped Camry sedan, the best-selling car in the U.S.

With more new models on the way, including a new version of the Prius hybrid, Toyota told suppliers it expects to build a record 8.9 million cars globally in 2012, up 11 percent from a forecast of 8.04 million this year, Katoh said.

As the yen hurts Denso’s profits, the company is aiming to cut production costs by up to 30 percent, he said. While it is able to shift production to overseas plants, it will keep enough capacity to support Toyota’s pledge to maintain 3 million units of annual domestic production, Katoh said.

Shares of Denso rose 1 percent to 2,416 yen at the 3 p.m. close of trading in Tokyo. The stock has dropped 17 percent since March 10, the day before the earthquake.

--Editors: Kae Inoue, Chua Kong Ho

To contact the reporters on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

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


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