Toyota Posts Record Quarterly Profit; Sales Outlook Weakened

by Trefis Team
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Toyota Motors Corporation (NYSE: TM) reported its Q2’19 results on 6th November and conducted a conference call with analysts the same day. The top Japanese automaker reported a net income of 585 billion yen ($5.3 billion) for the quarter ended September, up by 28% as compared to the same period a year ago. Total revenues stood at approximately $65 billion in Q2, a mild rise of 2% as the company experienced lower sales volume in its domestic market, North-American market, and Central and South-American market, which were thus offset by higher sales in Europe and Asia. Cost-reduction and marketing efforts helped the company to rack up its profit margin for the quarter, though an unfavorable exchange rate weighed on the margins.

We currently have a $122 price estimate for the company, which is above the current market price. View our interactive dashboard – Q219 – Our Outlook For Toyota Motors In FY19 – and modify the key assumptions to arrive at a price estimate of your own.

 

Key Highlights from Q2

The company reported consolidated vehicle sales of 2.18 million units, similar to 2.175 million sales in the quarter a year ago, largely because of declining sales in its domestic market and North-American market. The domestic and North American sales experienced the largest decline in comparison to other geographic regions, as the consumer preference in the market has been shifting toward SUV and crossover variants and also as a result of a decline in its passenger car market, as Toyota is not a mass producer of passenger vehicles.

Further, the company posted an operating income of 579.1 billion yen ($5.217 billion), as compared to 522 billion yen posted in the quarter a year ago. The increase was primarily attributed to approximately $1 billion in marketing efforts and cost reduction efforts, which was thus offset by forex rates, expenses including the impact of reduction efforts, and valuation losses from swaps.

Furthermore, though sales volume declined in Japan and North-America, the company experienced better-operating margins in these regions, typically due to better pricing in these regions. In Europe and Asia, where sales were higher, operating margins accelerated by 20 bps and 24 bps respectively. Finally, in other regions, where sales were lower, the company realized lower operating margins due to fierce competition from local brands and due to a strengthening yen in comparison to these currencies and the rise of raw material markets in these regions.

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 FY 2019 operating margin to be 30 bps lower than FY 2018 and net income lower by 200 bps due to currency rates. In addition, the company’s financial services operating income increased by almost 23 bps, mainly due to an increase in the lending balance and a decrease in costs related to loan losses and residual-value losses.

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