YOKOHAMA, Japan – Nissan Motor Co. reported a 19 percent slide in global operating profit in the latest quarter as foreign exchange losses and falling revenue bit into earnings.
Operating profit declined 163.9 billion yen ($1.62 billion) in Nissan’s fiscal second quarter ended Sept. 30, Chief Competitive Officer Hiroto Saikawa said today while announcing results.
Net income fell 16 percent to 146.1 billion yen ($1.44 billion) in the July-September period. Nissan attributed the decline to disadvantageous exchange rates, soft conditions in emerging markets and falling sales in Japan.
Worldwide revenue decreased 12 percent to 2.67 trillion yen ($26.36 billion) in the quarter, as global retail sales advanced just 0.4 percent to 1.34 million vehicles.
Saikawa said Nissan’s core auto performance in the quarter was dented largely by the appreciation of the Japanese yen. If exchange rates had remained the same as a year earlier, Nissan would have posted a 3.2 percent increase in revenue and an 8.5 percent gain in operating profit for the quarter, he said.
Instead, shifting foreign exchange rates lopped 179.8 billion yen ($1.78 billion) off operating profit in the fiscal first half. In the fiscal second quarter, results were also held back by falling volume in Japan and the United States, as well as stagnant sales in Europe.
Operating profit margin came to 7.1 percent at the end of the first half, still distant from CEO Carlos Ghosn’s Power 88 mid-term business plan goal. It targets global operating profit margin of 8 percent and 8 percent market share by March 31, 2017.
In the fiscal year that ended March 31, Nissan’s operating margin jumped to 7.0 percent, from 5.8 percent the year before. But Ghosn told Automotive News last month his company was unlikely to get to 8 percent by next spring because foreign exchange rates are sapping earnings.
Stripping out the negative foreign exchange rate impact, operating profit margin would have risen to 9.0 percent in the fiscal first half, Saikawa said.
North American profit was also hit by swinging foreign exchange rates, especially the yen’s appreciation against the Mexican peso and Canadian dollar.
North America regional operating profit fell 37 percent to 63.4 billion yen ($625.9 million) in the fiscal second quarter. North American retail volume climbed 2 percent to 519,000 vehicles, but U.S. sales slide 0.3 percent to 385,000 vehicles in the three-month period.
Saikawa said the U.S. market had peaked. “We don’t set potential for further growth,” he said. “Competition is becoming fierce in North America. Therefore, there are some elements of challenge in terms of profit margin.”
The slowdown is increasing pricing pressure and pushing players industrywide to lift incentives. Nissan must be careful to balance incentive spending with profitability, Saikawa said.
Nissan’s North American results were pinched by the higher incentive spending and by the market shift toward light trucks, away from cars, North America Chairman Jose Munoz said.
Nissan is more heavily weighted toward passenger cars than its direct rivals, and incentives on those cars are also higher than they are for trucks, further hurting results, Munoz said.
Nissan aims to turn that around in the fiscal second half by strengthening its light truck lineup through the recent launch of the Titan half-ton pickup and redesigned Armada SUV and through the introduction of minor model changes for the Pathfinder and Rogue crossovers, Munoz said.
In Europe, sales edged ahead just 0.3 percent to 179,000 vehicles, while regional operating profit increased 28 percent to 900 million yen ($8.9 million).
Nissan kept its full-year forecast unchanged. It expects the strengthening Japanese yen to undermine earnings. Operating profit is expected to fall 11 percent to 710.0 billion yen ($7.01 billion) in the current fiscal year ending March 31, 2017. Net income is forecast to essentially flat line, inching ahead just 0.2 percent to 525.0 billion yen ($5.18 billion).
Nissan said it is bracing for another hit from forex losses for the full year.
The company sees revenue sliding 3.2 percent to 11.8 trillion yen ($116.50 billion).
Global retail sales are seen expanding 3.3 percent to 5.6 million vehicles.
North American sales are expected to grow 2.9 percent to 2.07 million vehicles this fiscal year, while U.S. sales advance 3.5 percent to 1.57 million vehicles.