US Tax Windfall Doubles Toyota’s Q3 Profits

Automaker revised full-year earnings forecasts for third time.

by on Feb.06, 2018

Despite giving the Camry a stylish makeover the sedan continued to lose sales momentum last quarter.

Toyota reported a 54% increase in operating profit in Q3 despite weak sales in the U.S. However, it was the U.S. that help to double its profits from the year-ago period, courtesy of President Donald Trump’s recently passed tax plan.

Operating profit was 673.6 billion yen, or $5.98 billion, in the quarter that ended Dec. 31, an increase of 214.7 billion yen, or $1.91 billion. Additionally, net income rose nearly 94% to 941.8 billion yen, or $8.36 billion, the company said.

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The results pushed Toyota to revise its full-year earnings forecast for the third time, although its prediction for sales remained unchanged at 8.95 million for the year ending March 31.

Toyota’s revised consolidated financial forecasts, which is based on an exchange rate assumption of 111 yen to the U.S. dollar and 129 yen to the euro, now call for net revenue of 29 trillion yen, or $261.26 billion, operating income of 2.2 trillion yen, or $19.81 billion, income before income taxes of 2.45 trillion yen ($22.07 billion), and net income of 2.4 trillion yen ($21.62 billion).

(Accounting adjustment masks record year for GM. Click Herefor the story.)

Officials are all smiles after Toyota and Mazda announced it would build its new plant in Alabama.

“The latest operating income forecast is up 200 billion yen ($1.80 billion) from the previous forecast at the second quarter reporting,” said Masayoshi Shirayanagi, senior managing officer, in a statement.

“Excluding the overall impact of foreign exchange rates and swap valuation gains and losses, it is now up 130 billion yen (*$1.17 billion). This reflects additional contribution anticipated from profit improvement activities such as cost reduction, marketing efforts, and reduction of expenses.”

In addition to the one-time windfall due U.S. benefits, the company benefits from ongoing cost cutting measures and gains from favorable foreign exchange rates helped offset lackluster sales as reasons for the improved results.

The Japanese yen’s decline against the U.S. dollar, euro and other currencies pumped up quarterly operating profit by 195.0 billion yen ($1.73 billion). Cost cutting added another 35 billion yen ($310.7 million). However, the lowered U.S. tax liabilities, courtesy of the recent tax cuts, added 291.9 billion yen, or $2.59 billion, to Toyota’s bottom line, doubling its net income.

The U.S. tax breaks, which reduced the corporate rate to 21 percent from 33 percent, took effect on Jan. 1. But Toyota booked the impact in the company’s fiscal third quarter ended Dec. 31, accounting for a revaluation of deferred tax assets and liabilities on its U.S. operations.

In North America, vehicle sales totaled 2,131,194 units, a decrease of 13,822 units, while operating income, excluding the impact of valuation gains/losses from interest rate swaps, decreased by 229.9 billion yen ($2.05 billion) to 168.1 billion yen ($1.5 billion).

The sluggish performance in North America, Toyota’s traditional biggest market, resulted in North American operating profit plunging to 33.1 billion yen ($293.8 million) in the October-December period. Much of that was due to Toyota struggling with a large number of vehicles coming off lease, rising incentives and a move away from cars toward to crossovers, SUVs and pickups.

(It’s earning season:)

(Click Here for Ford’s 2017 results.)

(Click Here for FCA’s 2017 results.)

(Click Here for Daimler’s 2017 results.)

(Click Here for Hyundai’s 2017 results.)

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