Toyota Boosts Guidance as Profit Jumps 10%

Toyota Motor Corporation (NYSE: TM) said on Nov. 7 that its operating profit jumped 10% from a year ago in the quarter that ended on September 30, as a weaker yen boosted the Japanese auto giant's export profits.

Toyota's operating profit of 522.2 billion yen ($4.58 billion) came in ahead of the average estimate of 515.3 billion yen from Wall Street analysts polled by Thomson Reuters, and the company raised its profit forecast for the fiscal year that will end on March 31, 2018.

Toyota earnings: The raw numbers

Like many Japanese companies, Toyota's fiscal year begins on April 1. The quarter that ended on September 30, 2017 was the second quarter of Toyota's 2018 fiscal year.

All financial results are shown in billions of yen. Vehicle sales are rounded to the nearest thousand.

How Toyota's business units performed during the quarter

Toyota reports separate operating results for each of its regional business units as well as its captive-financing arm. Here's how each performed.

• In its home market of Japan, Toyota earned 321.8 billion yen of operating income (up 64.5% from the year-ago quarter) on sales of about 543,000 vehicles (down 4.2%). Its operating margin in the region was 8.3%, up 290 basis points from a year ago. Toyota attributed the gains to cost-reduction efforts and favorable exchange-rate swings, which affect its profits on vehicles produced in Japan and exported.
• In North America, Toyota earned 52.3 billion yen of operating income, down sharply from 131.4 billion yen a year ago, as its sales declined 1.8% to about 672,000 vehicles. Operating margin fell to just 2% from 5.6% a year ago. As it did last quarter, Toyota attributed the drop in income to "increased marketing expenses": Automakers' incentives have risen as new-vehicle demand in the U.S. has softened over the last several months. Toyota also noted that its production in North America was down from a year ago. 
• In Europe, operating income totaled 18.5 billion yen, down from 26 billion yen a year ago. Sales rose 8% to about 229,000 vehicles, but operating margin fell to 2.4% from 4.3% a year ago. Unfavorable exchange-rate movements were the culprit.
• In Asia, excluding Japan and Toyota's joint ventures in China, operating income rose 15.9% to 110.1 billion yen. Sales were roughly flat from a year ago, at about 382,000 vehicles, and Toyota's operating margin in the region rose by 10 basis points to 8.6%. Cost cuts helped here. 
• In China, equity income from Toyota's joint ventures with Chinese automakers came in at 23.3 billion yen, down 13% from a year ago. Like most of its global rivals, Toyota's prices in China have been under pressure from aggressive domestic Chinese automakers. Toyota's sales in China rose 8.9% in the quarter, to about 328,000 vehicles. 
• Toyota's "rest of the world" region includes Latin America, Oceania, Africa, and the Middle East. Here, Toyota earned 32.3 billion yen in operating income, up 19.6% from a year ago, on sales of about 349,000 vehicles (up 0.5%). Margin improved slightly, to 5.2% from 5.1% a year ago. Toyota attributed much of the profit increase to favorable exchange-rate movements. 
• Toyota's financial services unit earned 68.8 billion yen in operating income, up 21.8% from a year ago. Toyota attributed the increase to "growth in the lending balance."

As of September 30, Toyota had net liquid assets of 7.89 trillion yen ($69.4 billion), up 1.6% from the end of the prior fiscal year (March 31).

Looking ahead: Toyota boosted its full-year guidance

As it did last quarter, Toyota again boosted its expectations for operating income, operating margin, and net income in the fiscal year that will end on March 31:

For the full fiscal year, Toyota now forecasts:

• Revenue of 28.5 trillion yen, unchanged from the prior forecast. (Fiscal 2017 result: 27.6 trillion yen.)
• Operating income of 2 trillion yen, up 150 billion yen from prior guidance. (FY 2017: 1.99 trillion yen.)
• An operating margin of 7%, up from 6.5% in the prior forecast. (FY 2017: 7.2%.)
• Net income of 1.95 trillion yen, up 200 billion yen from the prior forecast. (FY 2017: 1.83 trillion yen.) 

Why the increases? Toyota now expects the yen to weaken (versus the U.S. dollar and euro) a bit more than it had previously.

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