Toyota CEO Akio Toyoda, shown here during the launch of the Lexus GS, wants more "passion" in the maker's products.
It’s been a great week for Toyota Motor Co. A day after revealing a strong sales surge that positioned it – at least briefly – as the number two maker in the U.S. market, the Japanese giant announced that earnings for the April – June quarter nearly doubled year-over-year.
The 93% increase reflects a variety of factors, including the impact of the weakening yen, and came despite continued challenges in China, the world’s largest automotive market. The strong performance during the first quarter of Toyota’s fiscal year led the automaker to up its forecast for the months ahead. But Toyota officials did sound at least a small note of caution.
Toyota beat estimates for both its first-quarter profit and sales, based on a consensus gathered by FactSet. April – June earnings came in at 562.1 billion yen, or $5.6 billion. Revenues were up 13.7%, meanwhile, to 6.25 trillion yen.
That encouraged the maker to boost its full-year earnings forecast to 1.48 trillion yen, which would be a 54% year-over-year gain. And Toyota now expects to reach an all-time industry record for production, at 10.1 million. It expects sales to be a slightly more modest 9.96 million, a target it had announced previously.
A major factor in Toyota’s strong performance was the weak yen which has helped prop up a variety of Japanese manufacturers including Sony which just announced it had squeaked back into the black after a series of losses. According to Toyota, the weaker yen generated 84% of its year-over-year increase in operating earnings – 310.2 billion yen, or $3.1 billion. The rest came from cost cutting.
The first-quarter results were announced barely a day after Toyota’s biggest subsidiary, Toyota Motor Sales USA, revealed July sales surged 16.5% which, at least for the moment, puts it in second place in the market, behind General Motors but ahead of Ford Motor Co., which itself had an 11% increase for the month.
Worldwide, Toyota actually experienced a modest 1.6% decrease in sales during the quarter ending June 30th. It was still able to hang onto its spot as the global best-selling automaker, about 50,000 units ahead of General Motors which nonetheless narrowed the gap sharply, as did third-place Volkswagen AG.
(First drive: 2014 Toyota 4Runner. Click Here for the review.)
Despite its strong performance and generally upbeat forecast, Toyota did issue a few cautionary notes. The maker said it could be facing a slowdown in Thailand and other emerging markets. It still hopes to regain momentum in China where all Japanese automakers have been hurt by an ongoing political dispute between the two countries. But even as that issue fades into the background there are signs that the Chinese auto market may be slowing down.
Another potential risk for Toyota, analysts warn, come from the same shift in exchange rates that helped buoy its April – June earnings. Japan is under pressure from those who feel the country has been unfairly manipulating its currency, an issue that has become central to negotiations over a U.S. – Asian trade pact. Toyota would be particularly vulnerable as it produces more of its products in the home market than competitors, such as Nissan, who have been shifting aggressively away from Japanese production in recent years.
(Despite strong earnings, Toyota may be on the defensive. Click Here to find out why.)
On the positive side, Toyota has been winning praise for the push inspired by chief executive Akio Toyoda to put more “passion” into its products. And while it is facing more competition in the hybrid segment than ever before it remains the leader in that market, the Prius “family” still the number one product line in Japan overall.
The maker also appears to have recovered from the impact of a safety scandal, says George Peterson, chief analyst at AutoPacific, Inc. Toyota paid a series of record U.S. fines for failing to act on problems including so-called unintended acceleration and was forced to recall 14 million vehicles worldwide in 2009 and 2010.
(Nissan earnings surge on weak yen. Click Here for the details.)
The maker isn’t the only one benefiting from the cheap yen. Shifting exchange rates drove a big jump in earnings for Nissan during the April – June quarter, though that wasn’t enough to prevent a 7% slide by Japan’s third-largest automaker, Honda Motor Co.
(Honda earnings slide despite weak yen, global sales increase. Click Here to see why.)