Toyota Motors (NYSE:TM) announced its third quarter results on Tuesday. Total revenues jumped 26% to 5.3 trillion Yen ($57.6 billion) while net income soared 23.5% to 99 billion Yen ($1.1 billion). For fiscal 2013 (i.e. April-March), Toyota upped the net income guidance to a whopping 860 billion Yen as the automaker expects a weaker Yen to inflate its fourth quarter earnings. 
The Yen is being devalued because of the economic policies undertaken by Japanese Prime Minister Shinzo Abe who took office in December last year. The Dollar currently yields about 92 Yen compared to about 78-80 Yen in the October-December period. A weak domestic currency will benefit Toyota since it manufactures half of its vehicles in Japan. Toyota’s products will become more affordable to foreign customers, which will help boost sales. At the same time, overseas profits will swell when translated back to local currency.
Conservative Sales Forecast
The world’s largest automaker sold 2.1 million vehicles (up 7%) in Q3 to take the full year count to 9.75 million units. In 2013, Toyota expects to sell 9.91 million vehicles. The sales forecast, although very modest, takes into account the problems that the automaker is likely to face in the domestic market as well as in China.
Toyota estimates its Japanese vehicle sales could fall as much as 20% in 2013.  The Japanese automobile market was artificially boosted in 2012 with the help of government incentives. Now that the subsidies have ended, the automobile market is expected to decline or at most remain flat. Japan accounts for about 30% of Toyota’s total sales, so any sales decline in Japan will have a significant impact on the overall number.
In China, Toyota along with other Japanese automakers have been struggling since mid-September after tensions arose between the two nations over claims on the disputed islands. However, after six consecutive months of sales drop, Toyota’s sales finally rose 23.5% in January.  Thus, if the latest sales report is taken as a harbinger of the improving situation, Toyota’s sales could very well top 9.91 million. China accounts for about 10% of Toyota’s sales.
Most of the sales growth will occur in North America where the automaker continues to do extremely well. The Corolla, Camry and Prius brands are extremely popular with American buyers. Sales in the U.S. topped 2.1 million in 2012 and the momentum continued into 2013, with sales up 27% in January. 
Japanese auto companies have had to battle the global recession, the tragic earthquake in Japan, plummeting sales in China – all within a span of 3-4 years. These companies had little control over all these events, and so the currency devaluation comes as a much needed positive boost.
We currently have a $91 price estimate for Toyota’s stock, but we are in the process of revising our estimates to incorporate the latest earnings results.Notes:
- Toyota Motors Investor Relations [↩]
- Toyota sees Japan sales dropping 20 percent in 2013: media, December 6, 2012, reuters.com [↩]
- UPDATE 1-Toyota’s China sales rise for first time since June, February 1, 2013, reuters.com [↩]
- U.S. Auto Sales, wsj.com [↩]