While a weaker yen increases revenue in its home currency, Toyota (TYO:7203) Motor Corp. kept its profit outlook for the current year, surprising investors who had anticipated an upgrade and highlighting the automaker’s concerns about its ability to produce vehicles amid part shortages, rising material costs, and pandemic disruptions in China.
Toyota (TYO:7203) shares dropped 3% as the largest automaker in the world maintained its operating profit forecast of 2.4 trillion yen ($18 billion) for the fiscal year ending in March, falling short of the average forecast of 3.3 trillion yen made by analysts. With a profit of 579 billion yen as opposed to the expected gain of 808 billion yen, the result also fell short of expectations for the April-June quarter.
Covid-19-related regulations in China, raw material price increases, and shortages of semiconductors have all disrupted vehicle production lines worldwide. Toyota (TYO:7203) officials warned there are still “many uncertainties ahead” despite the weakening of the yen, including economic pressure and future interest rate increases in other countries. The statement “We lack the confidence to raise guidance.” However, as planned, the automaker is continuing to produce 9.7 million vehicles this year.
An analyst at Tokai Tokyo Research, Seiji Sugiura, said they didn’t reach market estimates. It just wasn’t enough and disappointing. The analyst added that they saw no benefits from the weaker yen; they didn’t make more cars, and cost measures didn’t seem to have much of an impact.
Although the stronger currency helped to increase reported income by 195 billion yen, it was overshadowed by rising material prices, which had a negative effect of 315 billion yen, according to Toyota (TYO:7203). To be more “in line with contemporary reality,” Toyota (TYO:7203) said three months ago that it would impose an “intentional stop” in production during the April-June quarter. In recent months, output has also been hampered by Shanghai lockdowns and a water supply deficit in the Aichi prefecture.
Tatsuo Yoshida, a Bloomberg Intelligence analyst, said it’s Toyota’s style to have a conservative outlook. Still, we’ll likely see upgraded views unless there are surprises in the coming quarters. The outcomes demonstrate that Toyota (TYO:7203) is taking proactive measures to ensure that its suppliers maintain operational and financial viability by absorbing the majority of the cost increases, he continued.
Toyota (TYO:7203) revised its foreign exchange assumption from 115 yen to 130 yen to the dollar. Although the previous projection covered the difference in profit expectations between Toyota (TYO:7203) and analysts, the conservative forecast indicates that Toyota (TYO:7203) will still face manufacturing issues in the coming months. According to Toyota (TYO:7203), the fiscal year’s operating profit will increase by 670 billion yen overall due to the weaker currency.
Analysts had predicted 8.2 trillion yen in quarterly sales, while actual quarterly sales were 8.5 trillion yen. The forecast for total revenue for the year was raised from 33 trillion yen to 34.5 trillion yen. Analysts for the entire fiscal year anticipate sales of 35.2 trillion yen.
Toyota (TYO:7203) said in presentation materials that securing parts such as semiconductors will continue to be unpredictable. Still, they will strive to achieve production that exceeds their forecast by working closely with their suppliers.
Featured Image: Megapixl @Tktktk
