Earnings Preview: Toyota Fights Recall Woes and Stronger Yen


Toyota Motor (TM) will give investors the latest snapshot of the company’s financial strength Tuesday, when it reports fiscal third-quarter earnings. The Japanese automaker’s bottom line is likely to have been affected by its continuing safety recalls, weaker U.S. sales and the rising value of the yen, which has made exports more expensive.

A composite estimate of analysts surveyed by FactSet forecasts Toyota will report a quarterly profit of about 84 billion yen ($1 billion) on sales of 4.6 trillion yen ($56.2 billion), the Associated Press reported. During the same quarter in 2009, the automaker reported it earned 153 billion yen, reversing a loss from a year earlier.

Recall Woes Not Over Yet

Toyota’s recall woes, which began a little more than a year ago, have yet to abate. The company’s latest action, involving about 1.7 million cars worldwide to fix potential fuel leaks and other problems, was issued late last month. In the U.S., Ford Motor (F) and South Korean automaker Hyundai Motor have benefited from consumers wary of Toyota’s commitment to quality and safety.

Sales of Toyota vehicles, which include popular Camry, Corolla and Prius hybrid models, fell 0.4% in the U.S. for all of 2010, whereas Hyundai set a sales record for the year and Ford retook the nation’s No. 2 spot in sales, increasing its overall share of the U.S. market to 16.4%, 1.1 percentage points higher than in 2009. Further, the Dearborn, Mich.-based company recently reported its largest annual profit in more than a decade — $6.6 billion.

Ford isn’t the only American automaker giving Toyota a run for its money. General Motors (GM), fresh from restructuring and its November public stock offering, could possibly regain the title of world’s largest automaker this year as U.S. sales build momentum and demand in Asian nations — most notably, China — continue to speed up.

Rising sales in Asia are seen helping Toyota recover from the impact of record recalls and weaker U.S. sales than its competitors. “Toyota’s sales in Southeast Asia have been better than expected,” analyst Mamoru Kato told Bloomberg News. A forecast increase of 50 billion yen to 100 billion yen is likely, said Kato, of the Tokai Tokyo Research Center in Nagoya, Japan.

Rising Yen Could Force Production Relocation

Toyota, along with other Japanese automakers such as Honda Motor (HMC), has also struggled with the increasing value of the yen, which eats into earnings of goods sold abroad, including those in the U.S. The yen gained about 15% on the dollar last year.

Last month, Toyota President Akio Toyoda said his company could move some production away from Japan because of the strong yen, Reuters reported. “I do not want to relocate production simply because of something like foreign exchange rates,” Toyoda said. “If we are simply unable to make a profit, however, we may be forced to.”

Toyota will close the books on its 2010 fiscal year next month. The automaker is forecasting a 350 billion yen ($4.27 billion) profit for the fiscal year through March, AP reported. That’s 67% higher than a year ago, when results were stung by recalls. For the current fiscal year, Toyota expects to sell 7.41 million vehicles worldwide.

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