TOKYO -- Toyota Motor Corp.’s operating profit soared 54 per cent in the latest quarter as cost cutting and gains from favorable foreign exchange rates helped offset lacklustre sales.
A onetime windfall from lowered U.S. tax liabilities, courtesy of the recent tax cuts, also chipped in 291.9 billion yen (USUS$2.59 billion) that helped Toyota nearly double its net income.
The robust results prompted Japan’s biggest automaker to lift, for a third time, its earnings forecast and target record net income for the current fiscal year ending March 31, 2018.
Operating profit rose 54 per cent to US$5.98 billion in the company’s fiscal third quarter. Net income nearly soared 94 per cent to US$8.36 billion, the company said in its earnings announcement.
The U.S. tax breaks, which reduced the corporate rate to 21 per cent from 33 per cent, took effect on Jan. 1. But Toyota booked the impact in the company’s fiscal third quarter, which ended Dec. 31, accounting for a revaluation of deferred tax assets and liabilities on its U.S. operations.
Revenue increased 7.4 per cent to US$67.55 billion.
Global retail sales dipped 0.5 per cent to 2.63 million vehicles in the October-December period, including results from its Daihatsu small-car subsidiary and truckmaking affiliate Hino.
Worldwide wholesale volume edged ahead 0.4 per cent to 2.29 million.
Foreign exchange rate gains boosted the quarterly earnings. The Japanese yen’s decline against the U.S. dollar, euro and other currencies pumped up quarterly operating profit by US$1.73 billion. Cost cutting added another US$310.7 million.
WEAKENING NORTH AMERICA
But underlying business was sapped by weakening performance in North America, Toyota’s traditional cash cow and biggest market. North American operating profit plunged by more than half to US$293.8 million in the October-December period.
Regional wholesale volume in North America shrank 1.3 per cent to 735,000 vehicles in the fiscal third quarter.
In the U.S., Toyota has been struggling with a flood of vehicles coming off lease, rising incentives and a rush of consumers away from cars toward to crossovers, SUVs and pickups.
Declining North American production, as Toyota rolled out a full-model change of its Camry sedan, also took a bite out of regional operating profit.
Toyota’s car/truck sales mix lags in a U.S. market hungry for light trucks. Industrywide, cars made up just 35 per cent of total U.S. sales in 2017. But at Toyota Motor Sales U.S.A., which covers sales of both the Toyota and Lexus brands, cars accounted for 42 per cent of the mix.
Toyota Canada’s earnings are part of the automaker’s North American total and not reported separately. Canadian sales were up two per cent in the quarter.
The automaker builds the Toyota Corolla and RAV4 and Lexus RX 350 and RX 450h at three Ontario assembly plants. Toyota plans to wind down Corolla production and replace it with more production of the RAV4 to meet U.S. demand for the utility vehicle.
Toyota has been trying to rein in incentive spending, improve its management of leasing and pump up output of crossovers and pickups to bolster profitability.
Lower spiffs on some nameplates, such as the just-redesigned Camry sedan, are helping Toyota control incentive spending. Toyota’s outlays were lower than the industry average, which rose 9 per cent to US$3,672 per vehicle in 2017. But Toyota Motor Sales’ spending rose more sharply, climbing 11 per cent to US$2,367 per vehicle in 2017, according to data from Motor Intelligence Corp.
EUROPE A BRIGHT SPOT
European operating profit grew 29 per cent to US$206.8 million. European wholesale shipments increased 1.7 per cent to 237,000 units in the three months.
Toyota is coming off a previous fiscal year in which full-year net and operating profits both tumbled. That reversal cut short a run in which Toyota had notched two straight years of across-the-board records in full-year revenue, net income and operating profit.
President Akio Toyoda warned last May that his company was headed for a second year of falling profit and ordered massive cost controls to prevent that from happening.
Thanks to aggressive cost cutting and better-than-anticipated foreign exchange rates, Toyota is now predicting profit to modestly increase, rather than decline.
In announcing results, Toyota upgraded its fiscal year outlook for a third time. Its updated net income target, if achieve, would mark a new all-time high profit.
Toyota now expects operating profit to rise to US$19.53 billion in the current fiscal year, from US$17.67 billion a year earlier. Net income is seen advancing to a record US$21.3 billion from US$16.25 billion the year before.
Aggressive cost cutting and lower quality-related outlays will also help.
Toyota, however, kept its full fiscal year sales target unchanged.
It expects wholesale volume to drop just a hair to 8.95 million vehicles, from 8.97 million the year before. Retail sales are seen expanding to 10.3 million vehicles, from 10.25 million.