Toyota more than halves profit expectations

updated 10:46 a.m. ET Nov. 6, 2008

TOKYO - Toyota slashed its annual earnings forecast Thursday to less than a third of what it was the previous fiscal year, the latest stunning sign that the global slowdown and strong yen are taking a toll on Japan’s mighty automakers.

Toyota Motor Corp., which has been riding high on the success of its Prius hybrid and Camry sedan, reported that its July-September quarter net profit plunged 69 percent to 139.8 billion yen ($1.4 billion).

A contraction in the vital U.S. auto market, the credit crunch and recent jump in the yen from about 118 yen to a dollar a year ago to 100 yen levels — which erodes overseas income — have dealt a serious blow to Japan’s biggest automaker.

“The financial crisis is negatively impacting the real economy worldwide, and the automotive markets, especially in developed countries, are contracting rapidly,” said Executive Vice President Mitsuo Kinoshita. “This is an unprecedented situation.”

The company said it would try to cut costs and adjust production amid “a variety of risks and uncertainties, including higher energy and raw material prices.”

Although Toyota’s sales grew in Asia, South America and Africa, that wasn’t enough to overcome the declines in Japan, North America and Europe. In North American, sales plunged nearly 20 percent for the first six months of the fiscal year.

The company cut its net profit forecast for the year ending March 2009 to 550 billion yen ($5.5 billion), or about half of its earlier projection of 1.25 trillion yen ($12.6 billion), and about a third of the previous year’s profit of 1.72 trillion yen.

That would be the first decline in profit in at least seven years. There are no comparable numbers before Toyota’s accounting change seven years ago. It would also mark the lowest group net profit for Toyota since the fiscal year ended March 2001.

Quarterly sales dropped 8 percent to 5.98 trillion yen ($60 billion) from 6.49 trillion yen.

Both the quarterly results and annual forecast revision “were far worse than what we had expected,” Yasuaki Iwamoto, auto analyst with Okasan Securities Co. in Tokyo said.

“I was extremely surprised,” he said, adding that had expected a full-year projection of about 1 trillion yen ($10 billion).

The reduced profit forecast seems to reflect more than just a drop in sales and the strong yen, he added. The downward revision suggests a shift toward models yielding slimmer profit margins, possible planned price cuts and higher marketing costs, he said.

Concerns about oil prices as well as a growing awareness about the environment have pushed consumers away from gas-guzzling trucks and sport utility vehicles to smaller cars, which deliver less profit for manufacturers.

Toyota had so far avoided the serious problems of its money-losing American rivals General Motors Corp. and Ford Motor Co., which had seen on-year double-digit vehicles sale declines in the U.S. for some time.

But in October, U.S. sales slid to their lowest in 17 years, dipping 32 percent overall. Like other Japanese automakers, Honda Motor Co. and Nissan Motor Co. Toyota sales were badly hurt, sliding down 23 percent despite a zero-percent financing offer.

Toyota, which also makes the Lexus luxury models, revised its sales forecast for the year through March 2009 to 23 trillion yen ($232 billion). That’s down 12.5 percent from 26.3 trillion yen the previous year. Toyota had earlier expected 25 trillion yen ($253 billion) in sales for the fiscal year.

Toyota said it was wary of the global slowdown and the gyrations in stock and currency markets, where the yen surged to a 13-year high late last month and has since eased some. It also said competition in compact cars and other lower priced models is growing.

For the quarter ended Sept. 30, Toyota produced 1.95 million vehicles worldwide, down 2.6 percent from 2.00 million vehicles the same period a year ago.

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