Toyota posts record Q1 profit despite lower sales

Toyota Motor Corp reported on Tuesday a record quarterly profit that topped analysts projections as cost cuts and a weaker yen helped offset a decline in sales, which led the Japanese company to lose its spot as the worlds top-selling car maker.

Net income rose to ¥646.3 billion in the three months ended June 30th from ¥587.7 billion during the same period a year earlier, Toyota said, exceeding analysts median estimate of ¥617.1 billion. Consolidated vehicle sales slid by 127 285 units from a year earlier to 2 114 000 units, but revenue surged 9.3% to ¥6.98 trillion as the company continued to capitalize on the benefits of a weaker yen.

“Favorable foreign exchange rates and cost reduction efforts were main positive factors, while decreased vehicle sales and increased expenses to support initiatives for enhancing competitiveness were negative factors” said Managing Officer Tetsuya Otake.

The company cut its full-year sales forecast to 10.12 million units from 10.15 million. Last week it reported it sold 5.02 million vehicles in the first half of the year, ceding its position as the worlds top-selling auto maker to Volkswagen, which had sold 5.04 million vehicles during the same period.

However, Toyota continues to lead the industry in profits by far, thanks in part to the weaker yen. The Japanese company left its net profit forecast for the full fiscal year ending March 2016 unchanged at a record ¥2.25 trillion and revised slightly higher its revenue outlook to reflect higher-than-expected currency gains. Analysts project it may earn about $26 billion in operating profit this year, almost double the $14.8 billion estimated for Volkswagen.

Sales growth continued to be impaired by a self-imposed three-year pause on boosting production capacity aimed at preventing quality problems, which was lifted in April with plans to build plants in Mexico and China, but the new capacity would take at least a few years to come online. The car maker said in June sluggish demand in emerging markets will make reaching its annual sales target very difficult and it would need to boost sales in developed markets.

Vehicle sales in Japan fell by 35 856 units to 469 971 in the first quarter, while jumping by 18 404 in North America to 728 813. The company sold 206 374 vehicles in Europe, a decline of 1 107 units, while in Asia it registered a drop of 56 774 units to 328 602. In other regions, it booked a drop of 51 952 vehicles to 380 240.

Sales growth in the US has been slower compared to its rivals as demand for passenger cars, which make up more than half of Toyotas US sales, extends a decline on the back of rising purchases of SUVs and pickup trucks.

Still, the company continued to show strong results in China. It booked an annualized 20% jump in sales, while deliveries in July were up 23.7%, but moderating Chinese economic growth and saturation of the Chinese car market are expected to make “our business in China quite difficult”, said Mr. Otake.

Toyota Motor Corp settled 0.96% lower at ¥8 121 per share on Tuesday in Tokyo prior to the statements release, marking a year-on-year jump of 34.43% and valuing the company at ¥28.03 trillion. According to the Financial Times, the 25 analysts offering 12-month price targets for Toyota Motor Corp have a median target of ¥9 500, with a high estimate of ¥10 500 and a low estimate of ¥7 800. The median estimate represents a 15.85% increase from the previous close of ¥8 200.