Tag Archive | "profit"

Toyota Flags Third Year of Record Profit on Strong U.S. Sales, Cost Cuts


Toyota Motor Corp said it will crank net profit up to a third straight record this year as cost cuts and rising U.S. sales offset weaker business elsewhere, building on bumper earnings last year powered largely by foreign-exchange gains, reported Reuters.

Reporting net income jumped 50 percent in the quarter ended March, the world’s top-selling automaker said on Friday it expects net profit to rise 3.5 percent to 2.25 trillion yen ($18.75 billion) in the year that began in April.

The forecast assumes the dollar will be worth 115 yen on average this year. That’s conservative compared with 120 yen currently, implying Toyota’s net profit for the year may yet come closer to the 2.44 trillion yen average estimate of 27 analysts polled by Thomson Reuters.

For the past few years, President Akio Toyoda has called an “intentional pause” for the company founded by his grandfather. The strategy seeks to ensure sales growth stays at a sustainable pace, free of the overcapacity and quality problems that plagued the company in previous years.

“I think we are at a stage where we can move on to putting into practice what we have been preparing during the intentional pause,” Toyoda said at a news conference in the capital.

Toyota is looking to overhaul the way it designs and manufactures cars under a new initiative called Toyota New Global Architecture (TNGA), which aims to slash development and production costs and allocate part of the savings to making its cars more appealing. Advanced safety devices would be among features it plans to add to cars.

The first car developed under TNGA specifications – widely expected to be the next-generation model of the Prius sedan – is due for launch later this year. The first full-scale “simple and slim” TNGA factory will be built in Mexico in 2019.

The forecast for earnings growth this year came as Toyota projected overall vehicle sales will drop 0.8 percent to 8.90 million. But it expects lucrative sales in North America to grow 4.2 percent to 2.83 million, cushioning the blow of weaker sales in Asia, as well as Russia and the Middle East, which have been hit by falling oil prices.

Toyota expects operating profit to edge up 1.8 percent this year to 2.80 trillion yen, giving an operating margin of 10.2 percent – among the highest in the industry.

It expects cost cuts to contribute 265 billion yen, while currency losses will knock off 45 billion yen as a weaker Brazilian real and Russian rouble offset windfalls from a stronger dollar, which boosts the value of U.S.-based earnings when converted back into yen.

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Detroit Automakers Face Speed Bumps as Sales Growth Slows


Detroit’s automakers, on track for their best sales year since 2006, may want to brace themselves for rockier times ahead, reported Reuters.

Auto executives say the industry is as healthy as it’s been since being restructured in 2009. But judging by the recent stock performance of General Motors Co, Ford Motor Co and Fiat Chrysler Automotive, investors have a less robust view.

Over the past year, GM and Ford share prices have lagged the overall market, in spite of moves by those two companies to give more cash back to shareholders. Fiat Chrysler prices plunged last week as Chief Executive Sergio Marchionne made increasingly overt efforts to drum up interest in a merger with one of his rivals.

“The party may be starting to wind down,” said Charles Chesbrough, senior principal economist for IHS Automotive. “We’re still looking at a good couple years of strong demand, but the days of big sales increases are behind us.”

Optimists include Kurt McNeil, head of GM’s U.S. sales operations, who said Friday that the industry is on track to have its best sales year since 2006. U.S. sales of cars and light trucks are estimated to reach 17 million in 2015, compared with about 10 million in 2009.

U.S. consumer confidence is up, house prices are recovering and gasoline costs less than $4 a gallon in most parts of the country, supporting sales of the big trucks and SUVs that drive profits for the Detroit Three, just as they did before the financial crisis crash in 2008-2009.

But there are warning signals. Sales growth is slowing in the home market, demand for small cars and family sedans is falling, revenues have declined, profits outside North America and China are virtually nonexistent and share prices have flattened.

All three Detroit automakers missed analysts’ expectations for first-quarter earnings. After reporting healthy April U.S. car sales on Friday, stocks fell again at all three.

U.S. sales growth this year has slowed to 6 percent from double digits in 2010-2012. As demand slows, and more companies add production capacity in North America, competition from Asian and European rivals using cheap currencies will intensify. GM’s share of the North American market in the first quarter slipped to 16.4 percent in the first quarter from 16.5 percent a year earlier.

“Over the next couple years, we expect to see the industry cycle down — not next year, but 2017,” said John Hoffecker, managing director and global vice chairman of operations at AlixPartners. Detroit automakers have had “a good strong, long run,” but “there will be a correction from where we are today.”

Before the next downturn, the U.S. carmakers “need to find long-term solutions to sustainable profitability and cost competitiveness,” said Xavier Mosquet, global automotive practice leader for the Boston Consulting Group. “That may be their biggest challenge.”

Part of that solution may be to reduce their dependence on the U.S. market.

The companies need to reduce excess production capacity overseas, especially in Europe and South America, said Matthew Stover, auto analyst with Susquehanna Financial Group. And as U.S. demand slows, they need to generate a higher return on their overseas investments.

Ford and GM are losing money in Europe even after restructuring efforts that included plant shutdowns. GM has said it expects to return to profitability in Europe in 2016. In Latin America, GM and Ford are losing money as the Brazilian economy slows and economic turmoil wracks Venezuela, where Ford earlier this year took an $800 million pre-tax writedown. GM has signaled it could stop Venezuelan production in July. In China, GM’s profit margins fell to 9.9 percent in the first quarter from 11.2 percent a year earlier.

“GM and Ford earn terrific rates of return in North America, but they’re getting killed in Europe and South America,” Stover said.

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GM to Earn $350 Million Over Three Years From 4G Technology in Cars-CFO


General Motors Co will generate $350 million in improved profit over the three years to 2018 from its rollout of 4G LTE mobile broadband in its cars and trucks, the No. 1 U.S. automaker’s chief financial officer said on Wednesday, reported Reuters.

Chuck Stevens, speaking at a Bank of America Merrill Lynch conference, called GM’s OnStar 4G LTE connection an “untapped, under-appreciated opportunity.”

4G LTE is a wireless connection that allows faster flow of data and developing better in-car technology is critical to automakers like GM to attract younger, tech-savvy buyers.

“Based on our plans today, which are still in the early stages of really taking advantage of this technology, we expect to see $350 million of profit improvement between now and 2018 specific to 4G LTE, and in our view, that’s just the beginning,” Stevens said.

GM has launched 4G LTE in more than 30 of its 2015-model vehicles in North America and expects all 2016 models to have that capability, Stevens said. Future plans call for its rollout in overseas markets.

Stevens also reaffirmed the company’s near-term earnings outlook, saying GM is still targeting improved operating profit and margins in all auto regions this year, as well as achieving 10 percent operating margins and a profit in Europe in 2016.

He said the Detroit company expects operating earnings at its financial arm, GM Financial, to more than double by 2018.

Asked whether the 10-percent margin target was overly conservative, Stevens said he would have a hard time saying there wasn’t an opportunity to go higher but the company wanted to reach the target first.

He said GM would reduce its U.S. hourly pension obligations over time and, in answer to a question, said that could involve a similar approach as in 2012 with its salaried employees, when it sold those obligations to a third party.

During the last round of labor talks in 2011, GM and the United Auto Workers union agreed to discuss ways the automaker could reduce the risk of its pension shortfall, viewed by credit ratings agencies as debt and a concern to GM investors.

The agreement did not detail specific steps, but analysts have said other options could include allowing UAW-represented retirees to voluntarily take lump-sum cash payments in exchange for giving up pension claims. Stevens agreed on Wednesday that that approach could be an option.

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VW Keeps Profit Outlook, Raises Sales Target After Record Earnings


Volkswagen stuck to its guidance for operating profit after posting record earnings last year on double-digit gains in sales of luxury Audi and Porsche models, reported Reuters.

Europe’s largest carmaker said on Friday the group operating margin could come in a range between 5.5 percent and 6.5 percent, same as last year’s projection.

Operating profit rose 8.8 percent to 12.7 billion euros ($14.25 billion), up from 11.67 billion in 2013 and slightly above analyst projections of 12.6 billion euros.

The German group raised its forecast for revenue, saying it could exceed last year’s record 202.5 billion euros by as much as 4 percent.

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Toyota Dreams of Green Car Future, But Tied to Gas-Guzzler Present


Toyota Motor Corp is hitching its future to green cars, investing billions of dollars in gasoline-electric hybrids and fuel-cell vehicles, but for now its record profit performance is being powered largely by a gas-guzzling U.S. market, Reuters.

In the United States, relatively cheap gasoline prices helped to spur brisk 9 percent growth in industry-wide light truck sales in the first half of the year, making that one of the fastest-growing major global market segments – accounting for about one-tenth of global vehicle sales.

Toyota outperformed the overall U.S. market, moreover, with its fresh model line-up – the Highlander SUV was redesigned in February and the Tundra pick-up got a facelift last September – powering a 10 percent rise in its January-June U.S. light truck sales to nearly half a million vehicles.

That success is feeding the nearly $40 billion cash pile that Toyota will tap for future green car investments.

“The U.S. is one of the few bright spots contributing to year-on-year profit growth for Toyota while it faces a slowdown in places like Japan and Thailand,” said Koichi Sugimoto, an auto analyst at Mitsubishi UFJ Morgan Stanley.

Light trucks, a category that includes SUVs, accounted for around 42 percent of Toyota’s total U.S. sales in January-June, which were up 5 percent from a year earlier.

The strong showing continued in July, when Toyota’s total U.S. sales rose 12 percent due to robust SUV demand and larger discounts, outperforming the industry’s 9 percent growth and surpassing Ford Motor Co (F.N) to become the No.2 seller for the month.

Analysts forecast that Toyota’s April-June North American operating profit jumped at a double-digit rate from the same period a year ago, with Barclays auto analyst Tatsuo Yoshida putting the figure at 106 billion yen ($1.03 billion), up 30 percent year-on-year. The company will announce its first-quarter earnings on Tuesday.

Toyota’s North America numbers undercount the region’s actual contribution to profits, since they exclude much of the profits made from imported vehicles. Most of what Toyota earns through exports from its home country are counted with Japan profits, which likely fell in April-June due to a sales tax hike in April that dented domestic sales.

Barclays’ Yoshida forecasts Toyota’s Japan operating profit at 381 billion yen for the quarter, a 16 percent drop. In Asia, he expects a 12 percent decline to 92 billion yen.

LUCRATIVE LIGHT TRUCKS

Overall operating profit at the world’s biggest automaker is expected to drop 4 percent in April-June to 637.3 billion yen from the same period a year ago, according to the average forecast of 13 analysts surveyed by Thomson Reuters I/B/E/S.

For the full year to next March, Toyota forecasts its profit will edge up 0.3 percent to 2.3 trillion yen, extending last year’s record high.

Bigger vehicles such as light trucks tend to be more profitable than small cars.

For this financial year, Toyota is likely to make an operating profit of around $2,500 on average for every light truck such as the RAV4 or Tundra it sells in the United States. The figure for passenger cars such as the Prius or the Camry, Toyota’s best-selling car in the United States, is about $1,500, said Koichi Sugimoto, an auto analyst at Mitsubishi UFJ Morgan Stanley.

While Toyota reaps hefty profits from U.S. light trucks, its sales of the Prius, the world’s best-selling hybrid car, slumped 11 percent in the United States in the first half of the year.

Unlike Toyota’s U.S. light truck line-up, the flagship Prius has not seen a model change in five years. But its fortunes are set for a boost as Toyota readies a fourth generation of the hybrid to hit showrooms as early as next year.

Toyota introduced the Prius in late 1997 and endured years of losses to establish dominance in the segment. After selling more than 6 million hybrids over 17 years, Toyota says it is now earning money on the Prius and aims to make its hybrids as profitable as its gasoline-engine cars.

Toyota will further burnish its image as a green technology pioneer next year when it readies a fuel-cell vehicle for launch by end-March.

But for the rest of this financial year, it’s big gasoline-engine vehicles that will be underpinning Toyota’s profits.

“They are 15 percent share of the U.S. market and they’ve got to sell what the market buys, for sure,” said Kurt Sanger, autos analyst at Deutsche Securities in Tokyo.

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GM’s Profit, Hit by Recalls, Tumbles 80%


A $2.5 billion pretax bill for safety recalls and a victims’ compensation fund slashed General Motors Co.’s second-quarter profit and highlighted the work it must do to close a profitability gap with rival Ford Motor Co., which reported stronger results for the quarter ahead of a critical product launch, reported The Wall Street Journal.

GM on Thursday reported a $278 million profit, off 80% from a year earlier, as special items offset North American operating-margin expansion and continued growth in China.

The Detroit-based company recently launched a new family of pickup trucks and sport-utility vehicles in the U.S., but costs related to defects—resulting in nearly 30 million recalls this year—blunted the positive impact of new models designed to compete in the sweet spot of the American market.

Meanwhile, Ford’s second-quarter profit rose 6% to $1.3 billion, propelled by record earnings in North America and momentum in Asia.

Ford, like GM, was hit by weakness in Latin America and Russia, but posted its first quarterly profit in Europe in three years even as GM’s losses in the region continue to mount.

The results highlighted the role that North American profit margins play as a barometer for the health of domestic auto makers that were once far more fixated on market share as a yardstick.

After decades of citing high production costs as a competitive disadvantage in their home market, GM and Ford are capitalizing on more favorable labor deals to cash in on a resurgence in demand for their biggest vehicles.

Both companies boosted margins in North America, but Ford’s 11.6% operating profit in the region solidly outpaced GM’s 9.2%, overshadowing Ford’s loss of 1.2 points of U.S. market share.

Shares in GM fell 4.5% to $35.74 in trading Thursday. Ford’s stock edged up to $17.84.

RBC Capital Markets analyst Joseph Spak, in an investors’ note, said GM’s margin was “below general expectations.” Mr. Spak said GM has been able to command higher prices in recent months and that may have prompted higher forecasts ahead of Thursday’s earnings.

Ford is readying a new aluminum-bodied version of its best-selling F-150 pickup truck for launch later this year. Ford warned again that costs for that launch would likely depress profits during the second half.

GM finance chief Chuck Stevens said the company is confident that it can achieve a 10% operating margins in its core market by “mid-decade.”

Mr. Stevens, speaking to reporters in Detroit, said GM’s automotive business proved “resilient” in the face of the intense public scrutiny stemming from problems with ignition switches installed in GM vehicles dating back more than a decade.

Its North American market share was virtually unchanged, and dealers used the crisis to demonstrate the improvements GM has made to its vehicles in recent years, Mr. Stevens said.

Still, past quality problems are proving to be painful. The company last quarter set aside $400 million to compensate victims of accidents involving certain small GM vehicles, including the Chevrolet Cobalt, that were built in the last decade with defective ignition switches. Mr. Stevens said the fund, to be independently administered by compensation expert Kenneth Feinberg starting Aug 1, is based on a best-guess estimate and could grow by as much as 50%.

RBC Capital’s Mr. Spak said the fund estimate was well short of some forecasts. RBC, for instance, estimated $1.5 billion in its model for the reserve.

GM also took a $900 million noncash pretax charge during the quarter for recall costs it estimates could be accumulated over the next decade on the 30 million vehicles already sold and still on U.S. roads.

The auto maker recalled 22 million vehicles in the three-month period ending June 30, setting a pace of a quarter million vehicles a day being called back for quality problems.

GM Chief Executive Mary Barra, speaking during a conference call, said the review and analysis of past quality problems is “substantially complete.”

GM still faces a U.S. Justice Department investigation that analysts think could end with a multibillion-dollar fine for not telling customers or the U.S. auto-safety regulator about safety flaws.

The company disclosed on Thursday it is now also being investigated by Transport Canada and 45 state attorneys general in connection with its recalls.

“We are cooperating fully with all requests,” the auto maker said in a federal filing. “Such investigations could in the future result in the imposition of material damages, fines or civil and criminal penalties.”

GM’s $278 million profit in the second quarter compared with $1.41 billion a year earlier. Excluding certain one-time costs.

Revenue rose slightly from a year earlier to $39.6 billion.

GM’s operating loss in Europe last quarter grew to $305 million on new restructuring charges. In South America, GM posted a loss of $81 million as the economy remains soft in that region.

Ford’s pretax operating profit edged up to $2.59 billion, with cost cutting playing a key role in helping to offset a 1% decline in revenue for the quarter to $37.4 billion. Ford affirmed a forecast for full-year pretax profit of between $7 billion and $8 billion. It earned $8.6 billion in 2013.

Ford’s net was reduced by a $329 million write-down of an investment in a Russian joint venture. Still, Ford eked out a narrow pretax profit in Europe on favorable exchange and lower costs. Chief Financial Officer Bob Shanks said “we’re clearly on the way to a profit in 2015.”

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