Toyota Earnings Up Over 500% on Weaker Yen

Japanese giant raises forecast – but also faces some problems.

by on Feb.04, 2014

The Prius has helped drive Toyota sales worldwide.

The world’s largest automaker has now posted the industry’s largest profit for the final quarter of 2013, Toyota Motor Co. earnings increasing by more than 500%, much of that momentum driven by the weak yen.

Toyota earned 525.4 billion yen, or $5.2 billion, for the October-December period, the third quarter of the Japanese fiscal year, up from 99.9 billion yen a year earlier.  The maker’s quarterly sales, meanwhile, surged by 24%, to 6.6 trillion yen, or $64.2 billion.

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Toyota’s earnings handily exceeded the 437 billion yen, or $4.3 billion, consensus forecast of industry analysts polled by tracking firm FactSet.  That’s a sharp shift from recent days during which a number of key corporations have fallen short of industry estimates, driving a sharp sell-off of stocks in Asia and on other markets around the world.

Toyota itself was down 6% in Tuesday trading. But the earnings were released after the Tokyo market closed and it remains to be seen if Toyota’s strong showing will help turn things around in Wednesday trading.

(Honda earnings double in latest quarter. Click Here for details.)

The carmaker’s strong earnings, meanwhile, could actually create some headaches for Toyota management.  There is growing pressure on the company to share some of the roughly $40 billion in cash it has accumulated with investors while Toyota’s labor union is also seeking to get some of that money for workers.

For its part, the automaker showed nothing but optimism as it announced its earnings for the quarter, raising its forecast for the full fiscal year – which ends on March 31 – to 1.9 trillion yen, or $18.8 billion.  That would be double the prior year’s numbers and an all-time record for Toyota, exceeding the previous peak of 1.67 trillion yen, or $16.5 billion.

“Our upwardly revised forecast is due to progress in our recent profit improvement activities through cost reduction and marketing efforts, in addition to the change in our assumption of foreign exchange rates,” Managing Officer Takuo Sasaki said in a statement.

(Chrysler earnings quadruple in Q4. Click Herefor more.)

Analysts credit a number of factors for the strong showing during the most recent quarter.  Among other things, Toyota has been regaining ground lost in the world’s largest automotive market over the last several years.  Japanese makers, in general, had been hurt by Chinese consumer reaction to an angry political tiff with Japan over ownership of a chain of uninhabited islands both countries have claimed.

Meanwhile, Toyota has also fully recovered from a series of setbacks caused by the earthquake and tsunami that struck Japan in March 2011, and flooding in Thailand months later.

(Ford 2013 earnings up, 2014 prospects down. Click Here to find out why.)

Overall, Toyota still fell just slightly short of reaching a sales goal of 10 million vehicles worldwide during the 2013 calendar year but still gained momentum in the market where it handily beat second-place competitor Volkswagen AG and third-ranked General Motors.  Toyota expects to become the first automaker to ever break the 10 million mark during a 12-month period when it closes out the current fiscal year, however.

Roughly half of the latest earnings – 260 billion yen, or $2.6 billion – came in the form of a bonus from lopsided exchange rates.  The maker had originally expected to see the yen trade at 81 to the dollar during the period, but benefited from the yen’s dip to 100.

But that could lead to further backlash from those who question Japan’s proposed membership in the Trans-Pacific trade alliance under discussion.  The U.S., for one, has been criticizing Japan’s alleged currency manipulation.

And there are other potential headaches for the maker itself.  With about $40 billion in cash reserves, Toyota has been under pressure to increase spending on plants and products – and to share some of that horde with investors.

Meanwhile, the strong quarterly earnings will likely play into the hands of those who support a call by Japanese Prime Minister Shinzo Abe who has called for the nation’s corporations to increase wages faster than the rate of inflation.

Toyota’s own union, for one, has called for a 4,000 yen monthly increase in pay and annual bonuses equal to 6.8 months of earnings.

“It’s important to reduce concern about the future in order to expand consumption and to get the Japanese economy on a virtuous cycle,” the union said in the statement. “We will seek wage increases with that perspective.”

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