Toyota's FY 2011/12 Net Profit Slides 30.5% Y/Y Despite Fivefold Jump in Q4 Profit

Toyota today (9 May) announced financial results for its fiscal fourth quarter as well as for the full fiscal year (FY) 2011/12 that ended in March. For the January-March fourth quarter, net profit grew nearly fivefold to JPY121 billion (USD1.51 billion), up from JPY25.4 billion in the same quarter in the previous FY. Operating profit also soared more than fivefold during the quarter to JPY238.5 billion from JPY46.1 billion on sales of JPY5.703 trillion, up 23% year-on-year (y/y) from JPY4.642 trillion. For the full FY 2011/12, however, the automaker's net income plunged 30.5% y/y to JPY283.5 billion compared to JPY408.1 billion a year ago. Operating income also dropped 24% y/y to JPY355.6 billion from JPY468.2 billion on sales of JPY18.58 trillion, down 2.2% y/y. Consolidated vehicle sales for the FY totalled 7.35 million units, a y/y increase of 44,000 units.

For the current FY 2012/13, Toyota expects net profit to more than double to JPY760 billion and projects its operating profit to nearly triple to JPY1 trillion, its highest since the global financial crisis, on sales of JPY22 trillion, seen going up 18.4% y/y. The automaker expects group-wide global sales, including shipments at subsidiaries Daihatsu and Hino, to rise to 8.70 million vehicles in the FY to March 2013, up 18.3% y/y from 7.35 million last FY. Toyota also said it was assuming a dollar rate of JPY80 and the euro rate at JPY105 for the year to arrive at these projections.

Outlook and Implications

Toyota's stronger-than-expected performance in the fourth fiscal quarter comes as its production capacity—both at home and overseas—normalised from disruptions of the earthquake/tsunami disaster a year earlier and as it recorded solid sales in two of its major markets, the United States and Japan. The results were obviously accentuated by a huge sales decline in the corresponding quarter of the previous FY 2010/11, hit hard by the March natural disasters. The catastrophe continued to affect Toyota's business in the ensuing months as it reported a dismal first quarter (April-June) during which its net profit plunged 99.3% y/y to JPY1.1 billion and it reported an operating loss of JPY108 billion. This was when Toyota first upgraded its financial outlook for FY 2011/12, prompted by signs of a strong sales recovery in the second half on the back of an improving supply-chain situation in Japan and also to a certain extent by the Prius' return to the top spot in the domestic market. Toyota, however, followed it up with even weaker second-quarter results, resulting in a 71.8% y/y drop in its first-half net profit. Thailand's record floods came just as Japan's largest automaker was beginning to ramp up production to recover the losses from the Japanese earthquake in March. Disruption from the floods cost Toyota around 260,000 vehicles of lost output worldwide last year (see Japan: 9 December 2011: Toyota Prunes Earnings Outlook for FY 2011/12 on Thai Woes). Toyota bounced back with stronger-than-expected third-quarter results, shrugging off a firm yen and the damaging impact of flooding in Thailand, and raised its annual forecast, helped by cost cuts and Japanese government subsidies on eco-friendly car purchases (see Japan: 7 February 2012: Toyota's Q3 Net Profit Slips 14% Y/Y, Operating Profit Up 51%, Full-Year Guidance Raised).

Toyota suffered a drop in its operating profit in all operating regions during the FY 2011/12, except in Japan and Europe. In Japan, the automaker sold a little over 2 million units, an increase of 158,000 units compared to the last fiscal year, while its operating loss from Japanese operations decreased by JPY155.3 billion, to a loss of JPY207.0 billion. European sales totalled 798,000 units, up a modest 2,000 units y/y, while its operating income increased by JPY4.6 billion, to JPY17.7 billion. In North America, it sold 1.87 million units, a decrease of 159,000 units y/y, lowering its operating income by JPY153 billion, to JPY186.4 billion. In Asia, Toyota sold 1.33 million units, an increase of 72,000 units y/y, but still a JPY56.2-billion drop in operating income, to JPY256.7 billion. In Central and South America, Oceania and Africa, its vehicle sales totalled 1.28 million units, a drop of 29,000 units y/y, while operating income decreased by JPY51.3 billion, to JPY108.8 billion. Toyota's full FY operating profit, although declining on a y/y basis, is still a more than 30% jump on its projections as expected (see Japan: 30 April 2012: Toyota's FY 2011/12 Operating Profit Likely to Overshoot Projections).

In December last year, buoyed by the Japanese government's extension of tax breaks for low-polluting, fuel-efficient vehicles by another three years to help support the nation's mainstay auto industry, Toyota announced ambitious growth targets for 2012 and 2013 (see Japan: 22 December 2011: Toyota Eyes 20% Global Sales Growth in 2012, Announces Production and Sales Plans). Toyota is set to generate record sales at home this year with its Aqua subcompact hybrid as well as the Prius generating overwhelming sales and its minicar affiliate Daihatsu already speeding up development of a new gasoline (petrol) engine for next-generation minicars, which are set to constitute more than 40% of total new car sales in Japan this year. The incentives particularly benefit large automakers like Toyota, Honda, and Nissan who have a wide-ranging portfolio of fuel-efficient hybrid and small models. The automaker's near-term growth plan is centred around continued sales growth of its hybrid models, both in Japan and overseas. At home, it plans to boost sales of its Prius plug-in hybrid vehicle (PHV) as its effective price has fallen from some JPY3 million to JPY2.75 million thanks to the incentives. Toyota has raised its domestic sales forecast for 2012 by 100,000 vehicles to 1.63 million units, including 35,000-40,000 units of the Prius PHV. Toyota hopes to make the Prius PHV a pillar of its next-generation eco-friendly vehicle line-up after hybrid vehicles.

Overseas, Toyota plans to manufacture around 100,000 hybrids a year in the United States and China around 2015 to gradually reduce exports from Japan, and has earmarked tens of billions of yen for the project. The automaker had initially kept hybrid production at home fearing that making the vehicles abroad could lead to technology leaks, but has decided to go for local production as the vehicles' high price could undermine their success in two of its largest markets. In the US, Toyota plans to produce the Prius at its existing factories, including one opened last year in the state of Mississippi, with high localisation levels. In China, the world's largest auto market, Toyota is looking to develop key components for the Prius at a local R&D base, besides launching joint-venture (JV) production of batteries if it obtains government permission. Toyota began assembling the third-generation Prius at its JV facility with the FAW group last year but has announced plans to begin manufacturing a new variant in that country around 2015. Toyota sold 630,000 hybrids worldwide in 2011, with overseas sales accounting for nearly half. Prius sales reached 250,000 units in Japan and around 140,000 units in North America.

Further this year, Toyota anticipates continued growth in the markets of emerging countries in Asia and South America but a murky sales outlook in developed nations due to the European debt crisis. Furthermore, the automaker aims to cultivate a new market by promoting entry-level vehicles priced at around JPY1 million (USD12,850) to first-time car buyers among the middle classes in emerging countries. Toyota is expected to account for roughly 10% of vehicle sales in emerging countries this year by boosting production and rolling out low-priced vehicles. In North America, the company has set its sights on recapturing the 14–15% share it held before the earthquake and tsunami in March disrupted production.