Toyota Posts Notable 2018 Results And Continues Its Focus On Cost Cuts And R&D Spending

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Toyota Motors (NYSE: TM) released its fourth quarter and full-year results on 9th May. The company reported better than expected results, beating its own FY 2018 guidance. Coupled with the company’s announced 55 million share buyback program, Toyota’s stock price surged by ~4% post the declaration of its financial results. The company’s operating margins improved by 100 bps, largely impacted by a positive foreign currency gain, further backed by the company’s ongoing cost reduction efforts.

Although results were better than expected, Toyota reported a 7% decline in its consolidated sales volume in 2018 with a decline experienced across regions, including Japan, North America, and Asia. North American sales experienced the largest decline in comparison to other geographic regions, as the consumer preference in the market has been shifting towards SUV and crossover variants and also as a result of a decline in its passenger car market. Consequently, the company had increased its marketing activities and sales incentives in the region to increase its sales volume which has continued to weigh on the regions operating margins and the company’s overall operating margin as well.

The company’s improvement in its operating margin was particularly as a consequence of positive foreign currency gains. Nevertheless, the company’s cost reduction efforts have also added to the margin improvement and the company claims a positive contribution of 165 billion yen (approx $1.57 billion) as an impact of its cost reduction efforts.

Looking ahead, the company aims to step up its research and development (R&D) expenditure for the upcoming year by 150 bps to 1.08 trillion yen (approx $10 billion) in order to increase its stance in electrification and automation. Additionally, the company’s cost reduction efforts are expected to continue and add ~130 billion yen (approx $1.24 billion) to its operating margin. However, sales volume and margins are expected to be negatively impacted by a strengthening yen as it would continue to make Japanese products less competitive globally. The company expects its FY2019 operating margin to be 30 bps lower than FY 2018.

The company’s projected 2019 results are highlighted in our interactive dashboard. You can make changes to our assumptions by using our interactive platform.

 

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