Toyota Expects a Happy New Year - Analyst Blog

Toyota Motor Corp. ( TM ) expects to win the battle in 2012 and beyond after going through the rough years with several uncertain events. The automaker aims to achieve a 20% growth in global sales to 8.48 million vehicles in 2012 on the production of 8.65 million vehicles, up 24% from 6.97 million in 2011.

Toyota also stated that it expects to sell 8.95 million vehicles in 2013 by manufacturing 8.98 million vehicles. The estimated sales are higher than 8.43 million vehicle attained by the company in 2007. The estimates do not include sales by group companies such as Daihatsu Motor Co. and Hino Motors.

Losing the Crown

Toyota overtook General Motors ( GM ) as the world's biggest automaker by sales in 2008. However, the automaker lost its crown in the first half of the year, sinking below GM and Volkswagen AG ( VLKAY ) of Germany.

In the past two years, the company has been battered by several uncertain and unfortunate incidents that tarnished its reputation, resulted in declining sales and loss of market share.

Firstly, the automaker has recalled more than 15 million vehicles globally in more than 20 recalls since late-2009, surpassing all other automakers. The Transportation Department of U.S. also imposed a fine of $48.4 million due to late recall of millions of defective vehicles

Secondly, the automaker was hit by the earthquake and tsunami in Japan on March 11, 2011 that severely disrupted its parts supply chain all around the world. Thirdly, no sooner the company had recovered from the twin disaster in Japan than it was faced by another natural disaster in Thailand. The Thai floods again disturbed the company's vendor chains and hampered plans to recover from earlier losses.

FY12 Guidance

Few days back, Toyota announced its sales and earnings guidance for fiscal year ending March 31, 2012. The automaker expects to record a profit of ¥180 billion ($2.3 billion) for the year, which is less than half compared with the previous forecast of ¥390 billion made in August and the year-ago profit of ¥408.18 billion.

The company also expects revenues of ¥18.2 trillion ($234.4 billion) on global sales of 7.38 million vehicles for the year. This compared with the previous revenue forecast of ¥19 trillion on sales of 7.6 million vehicles and the year-ago level of ¥18.99 trillion on 7.31 million vehicles.

Toyota believes Thai floods will reduce the operating profit by ¥120 billion ($1.5 billion). Recently, the company has revealed that it lost production of 150,000 vehicles, including 90,000 units in Thailand and 40,000 units in Japan due to the severe floods.

Meanwhile, Toyota considers strong yen to hit operating profit by ¥190 billion ($2.4 billion) for the full year. Yen hit multiple historic highs this year, weakening the results of the ailing company. A strong yen dwindles down the company's overseas profit after translation, also making its products less price competitive in markets outside Japan.

The company expects yen to average 78 against the dollar for the year, down from ¥80 in its previous forecast. Meanwhile, it assumes an exchange rate of ¥109 against the euro, down from ¥116 in the previous forecast.

Earnings Recap

Toyota posted an 18.5% fall in profit to ¥80.42 billion ($1.03 billion) in the second quarter of fiscal year ended September 30, 2011 from ¥98.69 billion in the same quarter of prior fiscal year. On per share basis, profits were ¥25.65 (33 cents) versus ¥31.47 in the second quarter of fiscal 2011, missing the Zacks Consensus Estimate of 52 cents.

The continuous decline in profit was attributable to a fall in production volumes and sales volumes all over the world, especially Japan, North America and Europe due to the twin disaster in Japan.

Revenues in the quarter ebbed 5% to ¥4.57 trillion ($58.56 billion) on a 5% fall in sales volume to 1.81 million units. Vehicle sales dipped 14% to 504,780 units in Japan and 20% to 413,836 units in North America. However, it increased 3% to 186,873 units in Europe, 23% to 355,315 units in Asia, and 6% to 344,728 units in Other regions.

Operating income in the quarter slashed 32% to ¥75.39 billion from ¥111.46 billion in the second quarter of previous fiscal year.

The Tailwinds

Despite the backlash from worldwide disasters, Toyota believes improving world economy, expansion in the emerging markets such as China, technological development, new product launches and higher demand for fuel-efficient compact cars will positively affect its results.

We are optimistic about Toyota's continued effort in developing the hybrid vehicle offerings market. The company occupied the No.1 spot in the market after introducing Prius in 1997. Since then, the automaker sold more than 3.4 million hybrid vehicles till date. It expects to launch as many as 10 more gasoline-electric models by 2015 and offer a fuel-sipping option across its entire line-up by 2020.

Zacks Rank

Toyota is the leading automaker in the world in terms of sales and production. Its product portfolio consists of a full range of models from passenger cars, minivans and trucks as well as related parts and accessories. Its domestic competitor includes Honda Motor Co. ( HMC ) and Nissan Motor Co. ( NSANY ).

Due to the disappointing results and bleak outlook for fiscal 2012, the company retains a Zacks #4 Rank on its stock, which translates into a short-term (1 to 3 months) rating of Sell.

GENERAL MOTORS ( GM ): Free Stock Analysis Report

HONDA MOTOR ( HMC ): Free Stock Analysis Report

NISSAN ADR ( NSANY ): Free Stock Analysis Report

TOYOTA MOTOR CP ( TM ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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