Toyota Profit Forecast Trails Estimates on Slower U.S. Sales

(Bloomberg) -- Toyota Motor Corp. unveiled a share buyback and issued a full-year operating profit forecast that fell short of analysts’ projections as the automaker spends more on incentives to make up for sluggish U.S. car demand.

  • The outlook for operating profit for the fiscal year through March is 2.55 trillion yen ($23.2 billion), the automaker said in a statement Wednesday. That’s below analysts’ average projection for 2.63 trillion yen. The full fiscal year outlook for sales is 30 trillion yen, compared with the projection for 30.4 trillion yen.
  • Toyota also said it plans to buy back as much as about 1.7 percent of its stock for 300 billion yen; a repurchase program of a similar size was announced a year ago. “We will actively buy back stock by looking at our cash on hand and share price,” Senior Managing Officer Masayoshi Shirayanagi said at an earnings briefing in Tokyo.
  • Operating profit for the fiscal year just ended rose 2.9 percent to 2.47 trillion yen, compared with analysts’ average projection for 2.52 billion yen. Sales rose 2.9 percent to 30.2 trillion yen, compared with the prediction for 30 trillion yen.

Key Insights

  • U.S. President Donald Trump’s threats to raise tariffs and auto parts have pushed Toyota to step up investments in the U.S. The company added about $3 billion to a multiyear plan, with the automaker now planning to invest almost $13 billion over a five-year period ending in 2021.
  • Toyota is carefully balancing its pledges in the U.S. and its growth plans in China, where it became the fastest growing global carmaker last year. Toyota plans to boost China sales by 8.5 percent to 1.6 million units in 2019 and approved this week a $1.64 billion investment to expand one of its Chinese joint ventures’ new-energy vehicle capacity by 400,000 units per year.
  • There’s a major shift under way in the car industry toward electrified and autonomous vehicles, forcing carmakers to invest billions of dollars in new technologies. Toyota’s bets in transport services, which includes stakes in Uber Technologies Inc. and Grab, will take a long time to yield financial returns.
  • A weakening yen against the dollar is boosting Toyota and other Japanese exporters’ repatriated profits. Toyota based its forecasts on an exchange rate of 110 yen to the dollar.

Market Reaction

  • Toyota shares erased some losses, and were down less than 1 percent in afternoon trade in Tokyo.

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  • Toyota’s sales in the U.S., its largest market, fell 4.4 percent in April. Sales in China surged 20 percent to a record 142,600 units in the same month.
  • Trump said on April 28 that Japanese Prime Minister Shinzo Abe, who had visited him last month, agreed to put “$40 billion into the United States for new car factories.”

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