HONG KONG - Toyota Motor stunned markets on Thursday by posting an unexpected 28% drop in fourth-quarter profit and forecasting a decline of similar magnitude in annual net profit in the current fiscal year.
Toyota, the world's second-largest automaker by production volume after General Motors (nyse: GM - news - people ), reported Thursday that its net profit fell 28%, to 316.8 billion yen ($3.0 billion), for the three months ended in March, down from 440.1 billion yen ($4.2 billion) in the comparable period the previous year. The January-March quarterly net profit figure fell below an average estimate of 342.3 billion yen ($3.3 billion) from 20 brokerages surveyed by Reuters Estimates, thanks to a stronger yen and weaker sales in the key North American market.
The carmaker's operating profit, excluding the results of its Chinese joint ventures, slid 30.5%, to 396.7 billion yen ($3.8 billion), while revenues rose 3.8%, to 6.6 trillion yen ($63.2 billion)
Notwithstanding a 4.5% rise in its net profit for the year to March 2008, to a record of 1.7 trillion yen ($16.4 billion), Toyota forecast that it would face a tough time ahead, with net profit sliding 27.2% for the fiscal year ending March 2009, to 1.3 trillion yen ($12.0 billion), breaking a seven-year string of profit growth, while total sales are projected to drop 4.9%, to 25.0 trillion yen ($240.5 billion).
"Although we expect overall steady growth of the world economy to continue mainly in resource-rich countries and emerging countries, we face a variety of risks in the future business environment, including further slowdown of the economy in the United States, fluctuations in exchange rates and the stock market, and higher energy and raw material prices," Toyota stated. The car giant acknowledged it would also have to "pay close attention to higher downside risk of the Japanese economy whose recovery is at a standstill."
Toyota expected it would face fierce competition among leading global and regional automakers in the compact and economy car market segments. In addition, environmental regulations, which are being strengthened throughout the world as environmental awareness is on the rise, could also pose a threat to Toyota's margins and competitive position.
Like Honda (nyse: HMC - news - people ), which may lift its production capacity in China by 20% this year, Toyota is placing emphasis on emerging markets, which are expected to continue to grow smartly. It has been expanding in China, Russia and the Middle East to counter a slowdown in the mature markets of the United States, Japan and Western Europe.
Shares of Toyota Motor (nyse: TM - news - people ) skidded 1.8%, or 100 yen (96 cents), to 5,480 yen ($52.69), on Thursday following the negative earnings surprise.
Source: http://www.forbes.com/markets/2008/05/08/toyota-earnings-decline-markets-equity-cx_vk_0508markets03.html