Key facts
- Expected operating profit
- 1.11 trillion yen ($7.04 billion) for April-June, down 5% year-on-year
- Global sales
- Just over 2.5 million units in Q1, down 3%
- China sales decline
- 28% in the quarter
- Middle East sales decline
- One-third in the quarter
- Oceania sales decline
- 16%
- Central and South America sales decline
- 5%
Background
Toyota, the world's biggest automaker, is forecast to post a fifth consecutive quarterly operating profit decline when it reports April-June results on Tuesday. The median estimate of eight analysts surveyed by LSEG puts operating profit at 1.11 trillion yen ($7.04 billion), down 5% from a year earlier.
Analysts attribute the expected drop to weaker sales volumes in some overseas markets and rising costs across the supply chain, partly linked to the conflict in the Middle East that began in late February. The conflict has pushed up prices for materials including aluminium and naphtha and disrupted vehicle shipments to the region.
Global sales of Toyota and Lexus vehicles fell 3% to just over 2.5 million units in the first quarter, with sharp declines in China and the Middle East outweighing modest growth in the United States.
Current situation
Investors are also looking for clues on the fallout from a deadly earthquake that struck Japan's Kyushu island last week, disrupting production at suppliers and forcing Toyota to halt output at four domestic plants. Toyota has suspended production at three plants in the region through Wednesday and halted output at another plant in central Japan through Friday. Two of the four plants are vehicle assembly sites.
The uncertainty was highlighted on Friday when supplier Aisin said it could not say when output at a damaged plant near the quake's epicentre would resume. About 200 people were working on recovery efforts at the site.
Global sales in the quarter were dragged down by a 28% decline in China and a one-third drop in the Middle East. Toyota also posted weak sales in Oceania, down 16%, and in Central and South America, down 5%, where BYD and other Chinese brands are expanding aggressively, according to CLSA analyst Christopher Richter.
| Region | Sales change |
|---|---|
| Global | -3% |
| China | -28% |
| Middle East | -33% (one-third) |
| Oceania | -16% |
| Central and South America | -5% |
| United States | Modest growth |
Impacts
The expected profit decline reflects weaker sales volumes than anticipated, said Christopher Richter, autos analyst at CLSA. 'The first quarter could be a bit tougher than expected,' he said, adding that sales volumes appeared weaker than expected during the quarter.
Toyota has also faced pressure on U.S. sales from the transition of its outgoing RAV4 sport utility vehicle to a redesigned version of one of its best-selling models globally. Richter said investors would be keen to hear details about when the company expects the model's sales to accelerate.
The earthquake-related production halts and higher material costs could further affect Toyota's operations and its supply chain, potentially impacting dealers and customers awaiting vehicles, though the full extent remains unclear.
Future outlook
Scenario analysis: The possibilities below are not certain predictions.
Analysts will be looking for any change to Toyota's 3 trillion yen operating profit forecast for the current financial year, particularly as higher material costs and earthquake-related disruptions cloud the outlook. If the company revises its forecast downward, it could signal prolonged pressure on profitability.
If the earthquake's impact on suppliers persists, Toyota may face extended production halts, potentially affecting global vehicle supply and sales in coming quarters. However, if recovery efforts succeed and sales volumes improve, the company could see a rebound in profit.
The pace of RAV4 sales recovery and the evolution of the Middle East conflict will also be key factors. Should the conflict escalate, material costs may rise further, but if it eases, cost pressures could subside, offering some relief to Toyota's margins.
Source: omanobserver.om
