) is scheduled to announce its Q2 earnings on November 6. The yen
devaluation has played a huge role in lifting the automaker's
profits. Ever since Shinzo Abe stepped into the PM's office late
last year, the yen has depreciated ~25% against the dollar. This
has benefited the country's automotive companies since the overseas
profits now translate back to more yen. In fact, Toyota expects
operating margins to exceed 7.5% in fiscal 2014. This will be a
significant improvement from the 6% mark posted in the previous
a $120 price estimate for Toyota
, which is about 10% lower than the current market price.
During the first quarter earnings, the company raised its
guidance and now expects net income of 1,480 billion yen (~$15
billion) for fiscal year 2014, up from the previous estimate of
1,370 billion yen. Although the profit guidance is very aggressive,
challenges still remain for Toyota due to its inability to gain
market share in its key markets.
American Operations Stable
Although demand for Toyota's vehicles remains strong in the U.S
with sales up 8.1% to 1.7 million units through September, the
automaker has barely managed to maintain its market share.With the
2014 version of the Corolla release, the automaker expects the full
year sales of the refreshed model to top 300,000 units this year.
Furthermore, sales could accelerate to 330,000 units next year.
Until September this year, Toyota had sold 233,547 units of Corolla
in the U.S.
The success of the new Corolla is all the more important for
Toyota now that the Camry isn't selling as briskly as it used to.
Although the Camry continues to be the best selling car in the
U.S., its sales were flat through September. The revamped versions
of the Accord and the Fusion are becoming popular among the
American public. Moreover, the Camry isn't getting refreshed
Toyota also sees some upside in the light truck segment, a
category that has traditionally been dominated by American auto
companies. The light truck category consists of pickup trucks, SUVs
and crossovers. Pickups are a lucrative segment for any
automaker since they typically have higher margins compared to
mainstream cars. Earlier in the year Toyota released the 2014
version of the Tundra pickup, which is more muscular and spacious,
giving it a distinct American look. However, grabbing a foothold in
the light truck segment is more of a long-term project for Toyota
and its impact on the upcoming earnings will be limited.
After tensions broke out between China and Japan last year over
claims on the disputed islands, Japanese brands have fallen out of
favor with the Chinese public. The anti-Japanese sentiment still
lingers among the general public, and this continues to impact
sales of Japanese car companies. Sales were weak in the first half
of the year but have now begun to stabilize. Toyota's unit sales in
China are up 4.9% through October to 719,200 vehicles.
The situation is still fragile and any news or event that
reignites tensions between the two nations could once again drag
down the sales.
Weak Japanese Automotive Market
Toyota's performance in its home country is likely to remain
weak this year. Japan's automobile market was artificially boosted
last year with the help of government incentives. With the
subsidies ending late last year, the automobile market was expected
to decline this year.
It is not just Toyota whose sales have suffered; the entire
automotive market was down 4.8% in the first nine months of the
year. However, Toyota's performance was even worse with sales down
10%. Japan accounts for about a fourth of Toyota's sales, so losing
market share on its home turf could threaten the automaker's
See our complete analysis for Toyota
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