Editor’s note: An earlier version of this story overstated the number of vehicles Toyota sold in the latest quarter.
TOKYO – Falling vehicle sales, rising costs and foreign exchange rate losses pushed profits lower at Toyota Motor Corp. in the latest quarter, even though the slowdown wasn’t enough to derail the carmaker from achieving a third year of record earnings.
Toyota notched across-the-board records in revenue, net income and operating profit in the full fiscal year ended March 31.
But President Akio Toyoda also warned that profits will tumble sharply in the current fiscal year as the strengthening Japanese yen extinguishes the foreign currency gains that have powered the world’s biggest automaker to ever-better profits.
“We have benefited from an exchange rate tailwind that has helped raise our earnings above the level of our true capabilities,” Toyoda, grandson of the company’s founder, said today while announcing financial results. “That set of circumstances is likely to change for the worse this year.”
Hints of the downturn began emerging in the fiscal fourth quarter. Operating profit, net income and revenue all declined.
Operating profit fell 14 percent to 548.3 billion yen ($4.88 billion) in the January-March period, from 635.7 billion yen ($5.65 billion) a year earlier. Net income slid 4.4 percent to 426.6 billion yen ($3.79 billion), while revenue dropped 2.1 percent to 6.97 trillion yen ($61.97 billion).
In the fourth quarter, foreign exchange rate losses lopped 150 billion yen ($1.33 billion) off Toyota’s operating profit, foreshadowing the foreign exchange hit predicted in the current year.
Increased expenses for such projects as building Toyota’s new North American headquarters campus in Texas and increased labor costs depressed quarterly operating profits by another 67.4 billion yen ($599.3 million), erasing cost cutting efforts.
The reversal was exacerbated by a 2.3 percent decline in global retail sales. Toyota sold 2.46 million vehicles in the three months ended March 31, including results from its Daihatsu small-car subsidiary and truck-making affiliate Hino.
That compared with 2.52 million vehicles a year earlier.
Full-year profit gains
Full-year record results were better. For the 12 months ended March 31, operating profit climbed 3.8 percent to 2.85 trillion yen ($25.34 billion), while net income increased 6.4 percent to 2.31 trillion yen ($20.54 billion).
Revenue grew 4.3 percent to 28.40 trillion yen ($252.51 billion), even as global retail unit sales declined 0.7 percent to 10.09 million vehicles, from 10.17 million. Worldwide wholesale deliveries declined 3.2 percent to 8.68 million units.
Japan and North America anchored full-year earnings as Toyota’s biggest profit centers and top-volume markets.
Operating profit in Japan increased 6.8 percent to 1.68 trillion yen ($1.5 trillion) in the full fiscal year. Wholesale deliveries here declined 4.4 percent to 2.06 million vehicles.
North American operating profit declined 9.5 percent to 528.8 billion yen ($4.7 billion), but the region was still No. 2 in generating profits. Regional sales rose 4.6 percent to 2.84 million vehicles, making it Toyota’s biggest market. European sales dipped 1.7 percent to 844,000 units. Regional operating profit fell 11 percent to 72.4 billion yen ($643.7 million).
The results underscored Toyota’s sensitivity to exchange rates.
Like other Japanese automakers, it has benefited over the past couple years from the yen’s retreat against other currencies, as the Japanese government pursues an ultra-loose monetary policy in an effort to jump start the country’s economy. The yen’s decline against the dollar and other currencies aids Japanese exports and boosts the yen-dominated value of overseas earnings.
Indeed, for the just-ended fiscal year, foreign exchange gains boosted operating profit by 160.0 billion yen ($1.42 billion).
But with the yen gradually strengthening again, such gains are expected to dry up in the current fiscal year.
Rising yen clouds outlook
Looking ahead, Toyota expects operating profit to plunge 40 percent to 1.70 trillion yen ($15.11 billion) in the current fiscal year ending March 31, 2017. Net income is forecast to drop by 35 percent to 1.50 trillion yen ($13.34 billion).
Profits will implode, despite the fact Toyota predicts global retail sales will advance 0.5 percent to 10.15 million vehicles and wholesale volume will rise 2.5 percent to 8.9 million.
Undermining results will be a 935 billion yen ($8.31 billion) hit from foreign exchange losses triggered by the rising yen. Toyota expects the dollar to buy just 105 yen in the current fiscal year, compared to buying 120 yen last year.
Expenses are expected to increase as well, trimming another 540 billion yen ($4.80 billion) from Toyota’s income this year.
The company said it will spend more on labor, on retooling factories for its new modularized vehicle platform and on the continued build out of its new North American headquarters.
Toyota embarked on a new era of expansion last year after taking a three-year pause on new factories.
The offensive began with the introduction of Toyota’s new modular product platform, which debuted late last year in the fourth-generation Prius hybrid. The campaign will continue through 2020 with a new factory in Mexico and new line in China.
Toyota kept its title as the world’s biggest automaker in calendar year 2015 by selling 10.15 million vehicles.
But sales dipped 0.8 percent last year from a record 10.23 million units sold in calendar year 2014.
Last year’s retreat was the first sales decline for Toyota since 2011, when Japanese automakers were hit by a Japanese earthquake and tsunami that derailed production and sales.
Toyota expects global sales to contract another 0.7 percent to around 10.09 million vehicles in calendar year 2016.