Toyota Motor Corp, the world's most profitable automaker, posted a 2.7 percent rise in quarterly operating profit thanks to a weaker yen, stronger sales and cost cuts and nudged up its full-year forecasts.
Toyota, valued at $200 billion -- about 10 times the market capitalization of General Motors Corp -- is on its way to a seventh straight year of record earnings powered by a rapid push into China, Russia and other developing markets with popular models such as the Camry sedan.
Toyota's rising profits contrast with the troubles facing Detroit's GM and Ford Motor Co, which are mired in losses from restructuring costs and declining sales at home. GM will book a $39 billion charge when it reports third-quarter results later on Wednesday, triggered by cumulative losses over the past three years.
Toyota said its earnings engine remained robust, fuelled by a solid rise in vehicle sales rather than an artificial boost from a soft yen, although year-on-year profit growth slowed in the latest quarter from a 32 percent jump in the first quarter.
Our profit levels in North America and Japan remain high, while we're growing faster than rivals in emerging markets, Senior Managing Director Takeshi Suzuki told a news conference.
Cautious exchange rate assumptions for the second half, at 110 yen to the dollar and 155 yen to the euro, meant the higher profit projections could be achieved with room to spare, he added.
The yen is now trading around 114 to the dollar and 166 to the euro and a weaker yen translates into higher reported profits.
Backed by its brisk sales, Toyota nudged up its global sales forecast by 40,000 cars to 8.93 million vehicles and its operating profit forecast by 2 percent to 2.3 trillion yen for the year to March. Its net profit forecast rose by 3 percent to 1.7 trillion yen but the forecasts still lag the consensus among analysts for an operating profit of 2.5 trillion yen and net profit of 1.8 trillion yen.
Although there were some hopes for a bullish upward revision, the one we got reflects the strong results while still erring on the side of caution, said Atsushi Kawai, an analyst at Mizuho Investors Securities.
LITTLE IMPACT FROM SUBPRIME FALLOUT
July-September operating profit was 597 billion yen ($5.2 billion), up from 581 billion a year ago, when profit jumped 44 percent. The result was slightly short of a consensus estimate of 602 billion yen in a poll of six brokerages by Reuters Estimates.
The weaker yen added 50 billion yen, while better sales and cost reductions -- net of higher raw materials prices -- together contributed 60 billion yen. A rise in research and development and other spending shaved about 100 billion yen.
Toyota's sales dipped in North America and Japan last quarter, partly hit by a temporary production stoppage after an earthquake hit a domestic supplier's factory, but its share of both markets has grown amid weaker overall demand.
Although the North American market has been slightly underperforming as higher oil prices and the subprime problem hit consumer sentiment, our sales have been moving according to our initial forecast, and Toyota's advantage in the market is unchanged, Toyota's Suzuki said.
The U.S. subprime loan problem has had negligible impact on Toyota's finance business, with the default rate on auto financing hovering between 0.5 percent and 0.7 percent, he said.
While mainstay models such as the Prius hybrid remain buoyant, quality problems and stiff competition with Ford and GM have forced Toyota to slap thousands of dollar in discounts on the Tundra full-sized pickup truck, which it has billed its most important U.S. product launch ever.
SPREADING OUT RISK
Toyota is spreading out its earnings sources by beefing up its presence in emerging markets such as the Middle East, reducing its reliance on North America, where it makes more than half of its profits.
With new high-volume models such as the Corolla sedan coming next year, analysts expect Toyota sales to recover in the U.S. market, making up for a stubborn fall in Japanese car demand.
Second-quarter net profit grew 11.1 percent to 451 billion yen, as stronger sales in Europe, Asia and other markets eclipsed the slide in the United States and Japan, Toyota's two biggest markets. Revenue rose 11.2 percent to 6.49 trillion yen.
Domestic rivals Honda Motor Co and Nissan Motor Co also reported bigger quarterly profits last month, fuelled by a softer yen and sales growth.
Shares of Toyota have fallen 19 percent so far this year, underperforming Tokyo's transport sub-index, which has lost 12 percent.
I don't see any particular reason that Toyota's shares are underperforming, said Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management. Toyota has been affected most by the sell-off in Japanese shares because of its size and weight in the market.
Prior to the earnings announcement, the stock ended up 0.8 percent on Wednesday, against a 0.2 percent fall in the subindex.
(Additional reporting by Aiko Hayashi, Edwina Gibbs and Taiga Uranaka in Tokyo; Editing by Lincoln Feast)