TOKYO -- Operating profit dropped 11 percent at Toyota Motor Corp. in the latest quarter with rising incentives and foreign exchange losses broadsiding earnings as Japan’s biggest automaker struggled to shift its car-heavy mix to hot-selling light trucks in the important U.S. market.
But Toyota said it would redouble its profit improvement measures while going on “the offensive” to invest in future technologies such as autonomous driving and artificial intelligence.
Citing better exchange rate forecasts, it also lifted its full-year earnings outlook.
Operating profit fell to 574.29 billion yen ($5.11 billion) in the carmaker’s fiscal first quarter ended June 30. Net income advanced 11 percent to 613.06 billion yen ($5.46 billion), Senior Managing Officer Tetsuya Otake said Friday while announcing earnings results.
Revenue increased 7 percent to 7.05 trillion yen ($62.76 billion).
Global retail sales advanced 2.4 percent to 2.59 million vehicles in the April-June period, including results from its Daihatsu small-car subsidiary and truck-making affiliate Hino.
Toyota’s first-quarter decline came as Japanese carmakers race to adjust their passenger car-rich product mix to surging U.S. demand for crossovers, SUVs and pickups.
Toyota was among those caught behind the curve. Industrywide, cars made up just 37 percent of total U.S. sales in the first six months of the year. But at Toyota Motor Sales U.S.A., which covers sales of both the Toyota and Lexus brands, cars accounted for 44 percent of the mix.
Rising incentives
Toyota ramped up incentives to move slow-moving passenger cars, but it hopes to rein in the outlays with the launch of the next-generation Camry sedan later this year.
“Although we have increased marketing expenses in response to the current market and sales environment, we intend to control them adequately,” Otake said.
Higher marketing costs, including incentives, depressed operating profits by 30 billion yen ($267 million), erasing cost cutting efforts. Exchange rate losses lopped another 35 billion yen ($311.6 million) off Toyota’s operating profit in the fiscal first quarter.
The company is also spending more partly to retool factories for its new modularized platform. Called the Toyota New Global Architecture, or TNGA, it underpins such nameplates as the redesigned Camry sedan. The campaign will continue through 2020 with a new factory in Mexico.
Toyota’s profit slowdown is exacerbated partly by spiraling outlays for such things as higher incentives and ramped up investments in r&d and manufacturing sites.
Going on offensive
Toyoda said it will go on the “offensive” by investing more in autonomous driving and artificial intelligence and is considering mergers and acquisitions as a route to expansion.
“The speed of change is beyond our expectations… New competitors are emerging,” Otake said. “We have to find a new direction. And one of the directions is mergers and acquisitions.”
Otake said Toyota was still considering possible targets and said nothing was decided.
Toyota is also spending more to roll out its new modularized platform. Called the Toyota New Global Architecture, or TNGA, it underpins such nameplates as the redesigned Camry sedan.
Toyota is coming off a fiscal year in which full-year net and operating profits both tumbled. The 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. It also put Toyota on the path toward another decline in operating profit and net income in the current fiscal year.
CEO Akio Toyoda warned in May that he felt a sense of crisis as the company braced for two consecutive years of falling profits. He vowed to streamline operations to bolster margins.
“To avoid two consecutive years of earnings decline, we remain determined to implement further profit improvement measures,” Otake said.
“We intend to engage in more offensive activities going forward.”
Toyota lost its title as the world’s biggest automaker to German rival Volkswagen Group in calendar year 2016, with worldwide volume inching ahead just 0.2 percent to 10.2 million vehicles.
But that fell short of the 10.3 million vehicles VW reported selling for a 3.8 percent bump.
Brighter outlook
Toyota increased its outlook for the current fiscal year ending March 31, 2018.
The carmaker citing better than expected impact from foreign exchange rate gains as the yen depreciates against the U.S. dollar, euro and other currencies.
Operating profit is now expected to slide 7.2 percent to 1.85 trillion yen ($16.47 billion), while net income is seen declining 4.4 percent to 1.75 trillion yen ($15.58 billion).
In May, Toyota had predicted operating profit would fall 20 percent to 1.6 trillion yen ($14.24 billion), while net income is forecast to decline 18 percent to 1.5 trillion yen ($13.35 billion).
Global retail unit sales are seen essentially flat at 10.25 million vehicles, while worldwide wholesale deliveries are forecast to hold steady at 8.9 million units.
Japan leads
Japan anchored earnings as Toyota’s biggest profit center and top-volume markets. Operating profit in Japan increased 9.9 percent to 319.2 billion yen ($2.84 billion) in April-June period.
North American operating profit dropped by 50 percent to 89.2 billion yen ($794 million)
European operating profit more than doubled to 20.3 billion yen ($180.7 million).
Regional wholesale volume in North America inched ahead 1.1 percent to 723,000 vehicles for the fiscal first quarter, but North America kept its position as Toyota’s biggest market.
European sales increased 8.1 percent to 240,000 units in the three months.
