TOKYO – Toyota’s operating profit grew 14 percent in the latest quarter as rising sales and tighter cost controls offset a big hit from unfavorable foreign exchange rates.
Operating profit increased to 662.3 billion yen ($6.14 billion) in the automaker’s fiscal second quarter ended Sept. 30, Toyota said in its earnings report on Thursday.
Net income edged ahead 1.2 percent to 592.0 billion yen ($5.49 billion).
Revenue grew 4.5 percent to 7.64 trillion yen ($70.8 billion).
Global retail sales advanced 2.5 percent to 2.75 million vehicles in the July-September period, including results from its Daihatsu small-car subsidiary and truck-making affiliate Hino.
Worldwide wholesale volume increased 7.0 percent to 2.34 million vehicles.
In announcing the earnings results, Operating Officer Ken Kon said cost control and better sales efforts delivered underlining improvements across the board.
North America, Toyota’s single biggest market, emerged as a profit engine in the quarter.
Those positive outweighed a 110 billion hit ($1.02 billion) from uncooperative foreign exchange rates, Toyota said.
Kon said the company saw North American improvements through more targeted incentive spending, a shift of the portfolio toward crossovers and light trucks, and tighter cost control.
“We are promoting activities, such as carefully and strategically examining the allocation of incentives, strengthening model-based cost reduction activities, making efforts to improve the supply of SUV and light trucks, improving the productivity of each of our manufacturing plants and reducing fixed costs on companywide scale,” Kon said.
N.A. profit doubles
Regional operating profit in North America more than doubled to 118.0 billion yen ($1.09 billion) in the three months, as regional wholesale volume advanced 5.6 percent to 702,000 vehicles. Regional operating profit margin improved to 4.4 percent, from 1.4 percent.
Toyota has targeted spiff spending on vehicles that actually need it, while dialing back on those that don’t. A roll out of higher margin vehicles, such as light trucks, also helped.
“For North America, the new vehicles are having an impact, the RAV4, Corolla and Camry showed last year, these new vehicles are very generally accepted by the customers and because of that, we were able to reduce incentives,” Kon said.
In the July-September period, average spiff spending in the important U.S. market on Toyota and Lexus brand cars by Toyota Motor Sales U.S.A. increased 3.9 percent to $2,722.
But Toyota’s outlays as a manufacturer were still below the industry average of $3,951 the quarter. The industry average increased 4.7 percent in the three months.
The Toyota brand’s incentives rose 4.2 percent in the July-September quarter, from a year earlier, to an average of $2,313 per vehicle. Average spending at Lexus increased 6.1 percent to $5,788, according to figures from Motor Intelligence.
Europe profit falls
In Europe, wholesale volume increased 4.2 percent to 250,000 vehicles in the latest quarter. European regional operating profit dipped 2.7 percent to 37.1 billion yen ($343.8 million).
Toyota downgraded its sales forecast for the current fiscal year ending March 31, 2020.
It now predicts global wholesale deliveries will dip just 0.3 percent to 8.95 million vehicles, on the back of deteriorating demand in Asia, including China. In August, it had forecast a 0.3 percent increase to 9.0 million vehicles in the current fiscal year.
Toyota has been expanding sales in China, the world's biggest auto market, where demand has been strong for its recently updated models of the Levin, Avalon and Camry sedans, along with the ES sedan under its luxury Lexus brand.
Its sales in China rose 7.2 percent in the first 10 months of 2019, bucking an overall softness in the country, which is bracing for a second year of contraction amid slowing economic growth and tighter vehicle emissions standards.
Kon said sales in China were doing well, with Corollas proving popular and hybrids being accepted by the market.
"Our share isn’t large but we are catching up," he said.
Toyota kept its full-year earnings outlook unchanged. It said it now expects stepped-up cost reduction efforts and to help offset the sales slide. In August, it predicted a 14.2 percent increase in net income in the current fiscal year, buoyed by one-time equity securities gains, and a 2.7 percent decrease in operating income.
$1.8B share buyback
Flush with cash following the strong quarterly showing, Toyota said it would buy back up to $1.8 billion worth of its common stock, or 34 million shares, through end-March.
The stock repurchase represents as much as 1.2 percent of the company’s outstanding shares, and is in line with Toyota’s past buybacks. In recent years, the automaker has typically announced a repurchase authorization of 200 billion yen to 300 billion yen
"Toyota’s results leave a very good impression,” said Koji Endo, an analyst at SBI Securities. "U.S. sales were intact, they were up in Japan although southeast Asia is a bit worrying. Overall, sales are solid."
Reuters and Bloomberg contributed to this report