TOKYO — Japanese juggernaut Toyota Motor Corp., coming off a year of record profits, saw earnings retreat in the latest quarter but remains bullish about US economic prospects.
The company, in announcing its quarterly financial results last week, downplayed talk of a budding recession in the all-important US market, saying key economic indicators remain strong.
“In the US, service consumption is still growing, and the employment situation is still strong,” Toyota said. “Given that, we don’t see an economic recession or economic slowdown in the US”
The sentiment echoed that of fellow Japanese automaker Subaru Corp., which also reported fiscal first-quarter earnings last week. Subaru said US demand for cars remains robust.
“Despite concerns over an economic slowdown, there has been no change in sales momentum at our retailers,” CFO Katsuyuki Mizuma said after announcing that Subaru’s operating profit grew 25 percent in the April-June quarter. “If we can produce more cars, that will lead to more sales.”
The upbeat assessments come after the US economy shrank for a second-straight quarter and as US companies initiate belt-tightening measures such as preemptive job cuts.
At Toyota, wholesales in North America, its biggest market, shrank 4 percent to 635,000 vehicles in the company’s fiscal first quarter ended June 30 as supply chain increased heaval dented output.
Regional operating profit there plunged almost 60 percent in the period, as the local operating profit margin, excluding certain financial instruments, shriveled to 2.6 percent from a robust 7.6 percent a year earlier.
Toyota forecast North American sales to rise 8.6 percent to 2.6 million vehicles in the current fiscal year ending March 31, 2023, as the semiconductor shortage improves.
Toyota’s sliding profits in the April-June period underscore the challenge that the world’s largest automaker has in sustaining its stellar performance and fat margins going ahead.
Despite the quarterly retreat, Toyota lifted its full-year guidance — slightly — for net income and revenue. But the adjustment comes mainly from a windfall gain on the weakening Japanese yen.
Even with the improved outlook, the latest profit targets represent a decline from the previous fiscal year. Toyota kept its unit sales and production outlooks unchanged, citing the uncertain outlook amid the COVID-19 pandemic and global semiconductor shortage.
In the last three months, global sales at Toyota slipped 6.3 percent to 2.01 million vehicles. That figure covers deliveries for the Lexus and Toyota brands as well as Daihatsu and Hino.
Worldwide retail sales fell 7.8 percent to 2.54 million vehicles in the quarter.
The first-quarter stumble starts a challenging financial period after a fiscal year in which Toyota smashed earnings records across the board. In the year ended March 31, Toyota racked up all-time highs for revenue, operating profit and net income.
But in the latest quarter, continued production interruptions crimped the supply of new cars and dented sales. Meanwhile, costs spiraled higher as Toyota helped suppliers shoulder the burden of soaring prices of raw materials such as steel and aluminum.
A tail wind from beneficial foreign exchange rates helped offset a bigger hit from the cost surge.
The yen’s weakening against the US dollar increases the value of US earnings repatriated to Japan. The Japanese currency has lost 18 percent of its value against the dollar since last year.
For the current fiscal year ending March 31, 2023, Toyota expects operating profit to fall 20 percent to ¥2.4 trillion ($17.6 billion) as net income declines 17 percent to ¥2.36 billion ($17.3 billion). Toyota is keeping its production plan unchanged, at 9.7 million vehicles.
There is too much market uncertainty to warrant a bigger revision right now, it said.
At the same time, Toyota expects global retail sales to expand 3.1 percent to 10.7 million. If achieved, it would represent a record for the Japanese carmaker.
Naoto Okamura contributed to this report.