Bloomberg News

Nissan Cuts Full-Year Profit Forecast, Overhauls Management (1)

November 01, 2013

Nissan CEO Carlos Ghosn

Carlos Ghosn, chief executive officer of Renault SA and Nissan Motor Co., announced an overhaul of Nissan’s management as he pursues an operating profit margin target of 8 percent by the year ending March 2017. Photographer: Krisztian Bocsi/Bloomberg

Nissan Motor Co. (7201), Japan’s second-biggest carmaker, lowered its full-year profit forecast by 15 percent after demand in emerging markets slowed and recall costs mounted.

The company expects to post net income of 355 billion yen ($3.6 billion) in the year ending March 31, it said today. That’s below the Yokohama, Japan-based carmaker’s previous forecast of 420 billion yen and the 440.3 billion yen average of 18 analyst estimates compiled by Bloomberg. Profit is still projected to rise from the previous year as the weaker yen helps bolster earnings.

Chief Executive Officer Carlos Ghosn also announced an overhaul of Nissan’s management as he pursues an operating profit margin target of 8 percent by the year ending March 2017. The changes and earnings shortfall come amid slowing sales in some emerging markets and a recall of 910,000 vehicles that Goldman Sachs Group Inc. estimates will cost the company about 15 billion yen.

“The outlook in Thailand will remain quite weak this year mainly due to the lack of pent-up demand,” said Ashvin Chotai, managing director of Intelligence Automotive Asia in London. “It’s also certainly hard to be optimistic about Indonesia -- it’s a market which is always going to be volatile.”

Nissan also lowered its forecasts for operating profit and revenue.

Under the management changes, Chief Operating Officer Toshiyuki Shiga will become vice chairman and remain on the board, though the COO position will be abolished.

New Lieutenants

Three new positions will be created -- reporting directly to Ghosn -- to fill Shiga’s void, according to the company.

Among Ghosn’s new lieutenants will be Executive Vice President Hiroto Saikawa, who will be chief competitive officer overseeing the supply chain, research and development, as well purchasing and manufacturing, Nissan said. Executive Vice Presidents Andy Palmer and Trevor Mann will also take on positions as chief planning officer and chief performance officer, respectively, the company said.

Colin Dodge, currently executive vice president, will take on a new role managing special projects and report directly to Ghosn. Kimiyasu Nakamura, president of Chinese joint venture Dongfeng Motor Co., will assume companywide responsibility for customer satisfaction, reporting to Saikawa.

The executive reassignments are similar to what Ghosn did at Renault SA (RNO), where he’s also CEO. Earlier this year, Ghosn dropped the COO position at the French company after Carlos Tavares resigned and promoted internal executives to two newly created positions.

Nissan will announce further appointments for Europe, Africa, Middle East and India in the coming weeks, it said.

Financial Outlook

Nissan, the maker of Infiniti luxury cars, will also reorganize its operations to six regions from three now, breaking out markets such as China.

On Nissan’s reduced financial outlook, the company also cited unfavorable exchange rates in emerging markets, such as the Indian rupee. The company reduced its full-year global sales forecast to 5.2 million units, compared with an earlier forecast of 5.3 million.

Nissan fell 2.1 percent to close at 961 yen in Tokyo trading before the announcement, cutting this year’s gain to 19 percent. The Nikkei 225 Stock Average has risen 37 percent.

Slowing Demand

Honda Motor Co., Japan’s third-largest carmaker, reported second-quarter profit this week that fell short of analysts’ estimates amid slowing motorcycle sales and demand in Southeast Asia. Honda deliveries in Thailand declined 22 percent in the July-September quarter and the company cut its full-year forecast for two-wheeler sales, citing weaker-than-expected demand in Indonesia, Vietnam and India.

The Japanese carmaker is banking on the revamped versions of its top-selling models in the U.S. -- the Altima sedan and the Rogue small sport-utility vehicle, to continue boosting sales.

Nissan remodeled the Rogue to get a bigger share of the growing crossover segment from Honda Motor Co. and Ford Motor Co. U.S. sales of the new version that’s built in Smyrna, Tennessee, start in November, Nissan said.

In Japan, operating income rose to 99.4 billion yen in the quarter from 52.1 billion yen a year earlier. Domestic deliveries increased 11 percent in the quarter as Nissan introduced in June its first minicar jointly developed with Mitsubishi Motors Corp. (7211) to compete in the segment, the sales of which account for about 40 percent of new car sales in the country.

Global Recall

Nissan said on Sept. 26 it would recall 910,000 vehicles globally, including the Serena minivan and X-Trail SUV, over an accelerator glitch. The recall will cost the company about 15 billion yen, weighing down the company’s quarterly profit, according to Kota Yuzawa, an analyst with Goldman Sachs Group Inc. (GS:US) in Tokyo.

Analysts have cut their estimates for second-quarter profit by an average 21 percent from a month ago after the recall was announced, according to earnings estimates compiled by Bloomberg.

“If this is a one-off and it it’s contained, and if all adjustment occurs in this quarter, then that’s not necessarily bad news for the share price,” said Chotai at Intelligence Automotive Asia. “But it depends on the explanation of the company so this is something to look at.”

Yen Impact

The carmaker is among Japanese exporters benefiting from Prime Minister Shinzo Abe’s economic policies, which has weakened the yen and increased the value of repatriated earnings.

The yen has fallen about 12 percent against the dollar this year, helping Japanese brands as they face the most competitive lineup of vehicles from General Motors Co. (GM:US), Ford Motor Co. and Chrysler Group LLC in a generation.

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Ma Jie in Tokyo at jma124@bloomberg.net; Kae Inoue in Tokyo at kinoue@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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