Toyota Motor Corp <7203.T> beat forecasts with a fourth-quarter profit on Tuesday as it cut costs and its aggressive sales incentives swiftly drew U.S. customers back to showrooms after its worst recall crisis.

Toyota's projection for a 90 percent rise in operating profit for the year to end-March 2011 was little more than half market forecasts, however, in a sign of lingering caution as the world's biggest automaker faces a host of challenges to restore earnings.

Rivals such as Honda Motor Co <7267.T> have also given cautious forecasts citing uncertainty over raw material prices and difficulty in getting a read on car sales after government subsidies to stimulate demand end in Japan and other markets.

Toyota has the extra burden of unknown legal costs and spending on promotions to entice buyers after recalling some 8 million vehicles globally since last October to fix sticking accelerator pedals.

Some lawyers estimate Toyota faces potential civil liabilities of more than $10 billion in U.S. courts alone.

And it may face further federal fines, with U.S. safety regulators opening a fresh investigation over whether the automaker had delayed action to address complaints about certain steering system parts on Hilux pickup trucks.


Toyota had flagged a small operating loss for last year, estimating a $2 billion hit from lost sales from the damage to its brand and the recall costs.

Instead, annual operating profit came to 147.5 billion yen, bouncing back from a loss of 461 billion yen in 2008/09.

Japan's Yomiuri newspaper had reported on Sunday that the operating profit could reach around 100 billion yen for the year.

Toyota booked an operating profit of 95.3 billion yen ($1 billion) in January-March, marking a third straight quarterly profit and a swing from the 682.5 billion yen loss a year earlier. The result beat a loss estimate of 6.25 billion yen in a survey of 21 brokerages by Thomson Reuters I/B/E/S.

Toyota projected an operating profit of 280 billion yen for the 2010/11 business year, far more conservative than the consensus market forecast of 546 billion yen.

Less than a year at his post, President Akio Toyoda, the media-shy grandson of the company's founder, has had to face grilling in U.S. congressional hearings over Toyota's safety record. He has addressed workers and dealers in all major markets, at times tearfully, in an effort to boost morale and restore consumer confidence.

Toyota has beaten the market's growth in its most important U.S. market in the past two months with the help of incentives including zero percent financing, and has said it would continue offering them at least until the end of May.

Shares in Toyota have lost about 10 percent in the year to date, lagging a near 5 percent fall in Tokyo's transport sector subindex <.ITEQP.T> over the same period.

Before the results, Toyota ended down 0.7 percent at 3,495 yen, while the transport sector lost 1.3 percent.

(Editing by Lincoln Feast)