Toyota Roars Back With Robust Profit Forecast, Share Buyback

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Toyota Motor Corp. unveiled a 250 billion yen ($2.3 billion) share buyback and expects to return to pre-pandemic profitability in the current fiscal year as its ability to keep churning out vehicles amid a global shortage of automotive chips puts it in a prime position to capitalize on swiftly recovering demand for cars.

The Japanese automaker forecast 2.5 trillion yen in operating profit for the 12 months that will end in March, compared with a 2.4 trillion yen profit in fiscal 2019, before the pandemic. Analysts were predicting, on average, an operating profit of 2.7 trillion yen.

In a tumultuous period for the auto industry, Toyota quickly pulled ahead of the pack, straightening out its supply chain and ramping up production in order to meet rising demand for cars. The world’s No. 1 automaker now stands primed for the V-shaped Covid recovery eluding many of its peers, which are having to scale back because of the global chip shortage.

“Toyota has overcome the chip shortage,” Seiji Sugiura, an analyst at Tokai Tokyo Research Institute Co., said. “The forecast is conservative and there could be an upward revision, maybe up to 3 trillion yen of operating income.”

By maneuvering through the disruptions of the pandemic, Toyota rose to become the world’s largest automaker last year, wresting the title back from Volkswagen AG. Japanese rival Nissan Motor Co. by contrast reported an operating loss of 151 billion yen for the fiscal year on Tuesday. Honda Motor Co. is set to announce earnings Friday, with analysts predicting, on average, a profit of 549 billion yen, down about 13% from the previous year.

Early Mover

Early implementation of infection-prevention measures and a timely ramp up of production in China, where virus-related disruptions dissipated relatively early, meant Toyota has been able to increase its global output above the previous year’s level each month since August.

That allowed Toyota to meet demand for cars that rose swiftly in regions beginning to emerge from lockdown. Overall, unit sales for the fiscal year ended in March were down just 4% versus the previous year.

Amid the gloom, Toyota’s results “stand out as particularly bright,” Bloomberg Intelligence analyst Tatsuo Yoshida said. The company’s sales are proving sturdy, he said.

Stronger-than-anticipated demand for cars threw the auto industry for a loop at the beginning of 2021 when many were hit with the realization they hadn’t ordered enough chips to raise their output. The failure to secure semiconductors, which are crucial to making tech-laden modern cars, is expected to result in millions of lost vehicle sales this year. Experts are saying the dearth will probably get worse before it gets better.

The chip shortage is likely to impact 500,000 units of Nissan’s output this current fiscal year, though it aims to recover about half of those losses in the latter half of the year when the crunch begins to ease, said Nissan Chief Executive Officer Makoto Uchida, speaking at a briefing Tuesday.

Toyota Roars Back With Robust Profit Forecast, Share Buyback

Toyota has emerged relatively unscathed up until this point thanks to its practice of monitoring small suppliers and stockpiling chips, although a fire that broke out at an automotive chip plant owned by Renesas Electronics Corp. in March still poses a risk to the whole of Japan’s automotive sector.

U.S., China Demand

Toyota’s hybrid system of keeping inventory of some crucial parts gave it a leg up on other automakers depending heavily on the ‘Just-in-time’ manufacturing strategy of keeping a low stock of goods on hand.

As the shortage drags on, Toyota still expects to have sufficient semiconductors for production in the near term, though the summer months get a little cloudier, Bob Carter, Toyota’s top sales executive in the U.S., said in a recent interview.

Indeed, the company’s performance in the fiscal year just ended was impressive. Even though sales revenue dipped, net income increased on the strength of Toyota’s financial services business and margins rose to 8.3% from 6.8%.

The company’s deep contingency planning is putting it in a good position to reap sales from consumers in the U.S. and China who are snapping up cars, emboldened by signs the pandemic is waning. Toyota’s global sales in March rose 44% to 982,912 units, an all-time record for a single month.

Long History

The company expects sales for the current fiscal year to touch 10.6 million. Electrified vehicle sales alone should reach 8 million units by 2030.

Toyota recently announced plans to introduce 15 EVs globally by 2025, quelling to a certain extent concerns the automaker is falling behind rivals like VW in its development of electric cars.

Something few realize is how long Toyota has been developing EVs, Toyota Chief Digital Officer James Kuffner said at a briefing Wednesday. With 25 years of experience developing EV components like motors and power electronics, “Toyota is strongly positioned to lead the world in the best, reliable, low-cost battery-electric vehicles,” Kuffner said.

While any rebound may be delayed by the chip shortage, Toyota is likely to recover any lost sales when the situation eases to due to strong underlying auto demand in markets like China, Roman Schorr, a director at Fitch Ratings Ltd. wrote in a recent note. This could help accelerate the recovery in its operating performance and credit metrics to pre-pandemic levels, Schorr said.

Toyota shares rose as much as 2.7% Wednesday, before closing up 2.2%, bringing gains for the year to around 7%. The company will do a five-for-one share split per the register as of Sept. 30. The purpose of the stock split is “to reduce the minimum investment price, thereby creating an environment where it is easier to invest in our shares,” Toyota said in its earnings statement.

©2021 Bloomberg L.P.

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