Toyota CEO Akio Toyoda faces pressure to cut costs even as the maker invests in new products.
Snagged by a strong yen, tepid sales and supplier problems, Toyota Motor Corp. delivered a weak profit for the latest quarter, the Japanese giant also warning that the current fiscal year could be its weakest in nearly half a decade.
Toyota, whose global sales slipped behind rival Volkswagen AG for the first half of this year, said it earned $5.1 billion for the April-June quarter, the first in its new fiscal year. That was a decline of 14.5%. Operating earnings, meanwhile, were off 15%, to $5.9 billion.
Net revenues also declined 5.7%, to $60.9 billion, despite a modest 1% increase in global vehicle sales. The maker sold 2.53 million cars, trucks and crossovers for the quarter, but that number was short of expectations due to a series of natural and man-made disasters that impacted production in Toyota’s home market plants.
(Toyota’s U.S. sales slip in July. For a complete sales round-up, Click Here.)
Looking forward, Toyota painted a weakening picture, forecasting it will earn 1.6 trillion yen for the full fiscal year ending March 31, 2017, or $15.78 billion. That would be down 44% from the prior fiscal year and the lowest figure Toyota has reported since 2013.
“The biggest change to our forecast is that we are now budgeting for the yen to trade around 100 to the U.S. dollar and the euro to trade around 110 from July,” managing officer Tetsuya Otake said, during a briefing for analysts and reporters.
Toyota Prius sales have been slumping due to cheap gas, and the launch of the Prius Prime is delayed.
Despite the gloomy prospects for the Japanese economy, the yen has been gaining strength, and Toyota expects it to jump from 105 to the dollar to 102 during the course of this fiscal year. Since January, the yen has gained 16% against the dollar.
Toyota is particularly vulnerable to shifts in the yen because it produces 40% of its products in Japan, significantly more than key rivals Nissan and Honda. About half of that goes to markets abroad.
That heavy dependence upon Japanese production has hurt Toyota in other ways in recent months. In February, an explosion at a key steel supplier disrupted production at a number of Toyota plants. That was followed, in April, by a series of earthquakes in Southern Japan that interrupted production by a number of other suppliers. Other parts production issues followed.
The earthquake alone cost about 60,000 vehicles in lost production, according to Toyota, resulting in a 70 billion yen hit to its earnings. The maker says it expects to make up that lost volume before the end of the fiscal year.
As a result, global sales fell behind plan. Though up for the April-June quarter, Toyota reported a downturn of 0.6% in sales for the first half of this calendar year, to 4.992 million vehicles. A year earlier, the automaker sold 5.021 million Toyota, Lexus and Daihatsu-branded vehicles from January through June.
Despite its own problems, VW blew by Toyota to become the world's largest automaker for the first half of 2016.
VW, by comparison, jumped into the lead, delivering 5.116 million cars, trucks and crossovers for the first half of this year, a 1.5% increase.
(For the latest on the global sales race, Click Here.)
Production snags were only part of the problem. Toyota has seen a weakening of demand for a number of key models, such as the compact Corolla and midsize Camry. The Prius, long the world’s best-selling hybrid, also lost momentum, especially in North America as fuel prices slipped to near decade-low levels. The maker this week said it was delaying the global production start-up of a new plug-in hybrid version of that model, the Prius Prime.
Particularly worrisome to some observers, Toyota’s operating profit margin dipped to 9.7% for the latest quarter, down from 10.8% a year earlier. And the maker forecast it will slide to 6.2% for the full fiscal year.
Toyota officials said they plan to make a number of cuts to respond to the company’s problems, notably to labor costs.
(For more on the delay of the Toyota Prius Prime, Click Here.)