Japan Inc. isn’t dead yet.
Toyota Motor Corp. (7203), the nation’s largest manufacturer, yesterday raised its profit forecast after earnings from Japan last quarter jumped to a four-year high of 143.7 billion yen ($1.8 billion). That was 46 percent higher than the average estimate of five analysts surveyed by Bloomberg, while income from North America and other parts of Asia missed projections.
Asia’s largest automaker benefited from government subsidies that drove up demand for Prius hybrids, and cited 160 billion yen in cost savings for allowing Toyota to earn more profit in Japan than in any other region. That’s a contrast to the losses piling up at electronics makers from Sharp Corp. (6753) to Panasonic Corp. (6752) and Sony Corp. (6758) as they struggle to compete against the likes of Samsung Electronics Co. (005930) and Apple Inc. (AAPL:US)
“Manufacturers have a lot to learn from Toyota,” said Edwin Merner, Tokyo-based president of Atlantis Investment Research Corp., which manages about $300 million in assets. Others can learn to “stay the course even in bad times, not blame other people or the government when things go wrong,” he said.
Toyota has gained 26 percent in Tokyo trading during 2012, the most among Japan’s three largest carmakers. The stock climbed as much as 1.3 percent today, while the benchmark Nikkei 225 Stock Average declined.
Profit at home offset the current slump in China, where a wave of anti-Japan sentiment, stemming from a territorial dispute over a group of islands claimed by both countries, is driving consumers away from products made by Japanese companies from Toyota to Canon Inc. (7751)
Toyota expects sales in China during the fiscal second half ending March to be 200,000 vehicles fewer than the company had expected and drain profit by 30 billion yen, Executive Vice President Satoshi Ozawa told reporters yesterday. The carmaker trimmed its annual total sales forecast by 50,000 units to 8.75 million units.
Toyota researchers estimate Japanese automakers are unlikely to fully restore Chinese production before July because of the consumer backlash, according to an Oct. 23 internal note prepared by Toyota’s research division, obtained by Bloomberg. Joichi Tachikawa, a Toyota spokesman, declined to comment on the document.
Still, the Toyota City, Japan-based carmaker raised its full-year projection for net income and operating profit after the company reduced costs by 230 billion yen during the fiscal first half. That’s a contrast to Honda Motor Co. (7267), Japan’s third- largest automaker, which last week cut its profit forecast 20 percent, citing concerns about China demand.
For Toyota, the Japanese operations posted their third- straight quarter of profit, after eight quarters of losses. In Asian markets outside of Japan, earnings rose 32 percent, albeit 10 percent less than the average estimate in the Bloomberg survey.
In North America, the maker of the Camry sedan saw operating income double to 64.9 billion yen, though that was 18 percent below the consensus. Toyota has gained market share in the U.S. this year, leaving less room for companies such as Suzuki Motor Corp. (7269), which plans to end car sales in the country.
Toyota’s earnings from Europe, which beat analysts’ estimates, only accounted for 2.5 percent of total operating profit.
“These are positive results and it shows Toyota is doing quite well this year in areas except China,” said Manabu Tamaru, a fund manager at Baring Asset Management Co. in Tokyo. “In the U.S., hybrid cars are selling pretty well, the product mix is strengthening and in Southeast Asia, the Toyota brand is making steady progress.”
In Japan, Toyota’s deliveries gained 20 percent last quarter as pent-up demand and government subsidies for fuel- efficient cars spurred demand. The Japanese market expanded 14.2 percent in the three months through September, outpacing growth in the U.S., according to data compiled by Bloomberg.
Government subsidies ran out Sept. 21, leading domestic sales to start falling that month. They fell 5.7 percent in October, according to the Japan Automobile Dealers Association. The expiration of government subsidies for fuel-efficient cars presents a “downside risk” to Toyota’s earnings, Kohei Takahashi, a Tokyo-based analyst with JPMorgan Chase & Co., said in an Oct. 15 report.
“The subsidies really provided a tail wind,” Toyota’s Ozawa said. “That helped the results exceed expectations.”
Toyota expects Japan to lose about 20 billion yen in the fiscal year, though less than the 70 billion yen loss the company previously expected, Ozawa said. The company has improved profitability in Japan by raising prices of exported cars, increasing the efficiency of domestic factories and cutting costs through suppliers, possibly by more than 300 billion yen this fiscal year, he said.
The company is cutting manufacturing costs through a method it calls “Toyota New Global Architecture” by sharing components across platforms and reducing the number of parts used in a car. For example, Toyota has reduced the number of radiator types they buy to about 20 variants, from 100, Executive Vice President Shinichi Sasaki told reporters in April.
By comparison, Japanese electronics makers are firing thousands of workers and shutting down factories to stay alive. Confronted with falling demand for TVs and a record yen eroding the repatriated value of overseas sales, Sony, Panasonic and Sharp posted record losses last year.
Sharp is now predicting an even bigger 450 billion yen loss and Panasonic is expecting to lose 765 billion yen. Sony this month reported its seventh straight quarterly loss, though the company is predicting its first annual profit in five years.
“Unless you think the world economy is going to fall apart, and it might, Toyota should do well over the coming few years and looks very undervalued if you can take a one-to-three year view,” Atlantis Investment’s Merner said. “I assume all the analysts are now going to recommend the stock and it may go up too quickly. But even so it is a company you want to own.”
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