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Toyota Shares Drop After Sticking to Conservative Profit Outlook

Published August 4, 2022


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Bloomberg News

Toyota Motor Corp. kept its profit outlook for the current year, surprising investors who expected an upgrade and underscoring the carmaker’s concerns over its ability to produce vehicles amid parts shortages, rising material costs and pandemic disruptions in China, even as a weaker yen boosts income in its home currency.

Toyota shares fell 3% after the world’s biggest automaker kept its forecast for operating profit of 2.4 trillion yen ($18 billion) for the fiscal year through March, short of analysts average projection of 3.3 trillion yen. The result also fell short of estimates in the April-June quarter, at 579 billion yen versus the prediction for 808 billion yen in profit.

Semiconductor shortages, higher raw material costs and Covid-19-related curbs in China have caused turmoil at auto assembly lines across the globe. Even though the yen has weakened, Toyota executives said there are still “many uncertainties ahead,” such as downward pressure on the economy and potential interest rate hikes in other economies. “We are not confident enough to raise guidance.” 

Even so, the carmaker is sticking to its plan to assemble 9.7 million vehicles for the year. 

“They didn’t reach market estimates, it just wasn’t enough and disappointing,” said Seiji Sugiura, an analyst at Tokai Tokyo Research. “They saw no benefits from the weaker yen, they didn’t make more cars and cost measures didn’t seem to have much of an impact.”

While the weaker currency helped to boost reported income by 195 billion yen, that was outweighed by soaring material prices, which had a negative impact of 315 billion yen, according to Toyota. 

Three months ago, Toyota said it would implement an “intentional pause” in output during the April-June quarter to be more “in line with recent realities.” Lockdowns in Shanghai and a water supply shortage in Aichi prefecture also disrupted production over recent months.

“It’s Toyota’s style to have a conservative outlook, but unless there are surprises in the coming quarters, it’s likely that we’ll see upgraded views,” said Tatsuo Yoshida, a Bloomberg Intelligence analyst. The results show that Toyota is being proactive in making sure that its suppliers remain operationally and financially sound by absorbing many of the cost increases, he added.

Toyota updated its foreign exchange assumption to 130 yen to the dollar from 115 yen. While the prior outlook accounted for the gap between Toyota’s and analysts’ profit views, the conservative forecast suggests that Toyota still sees production challenges in the months ahead. In total, operating profit for the fiscal year will get a 670 billion yen boost from the weaker currency, Toyota said.

Quarterly sales was 8.5 trillion yen, exceeding analysts’ projection for 8.2 trillion yen. The full-year revenue outlook was upgraded to 34.5 trillion yen from 33 trillion yen. Analysts are predicting full fiscal year sales of 35.2 trillion yen.

“Securing parts such as semiconductors will continue to be unpredictable, but we will strive to achieve production that exceeds our forecast by working closely with our suppliers,” Toyota said in presentation materials.

The views and opinions expressed in this story are those of the authors and do not necessarily reflect the official policy or position of NADA.

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