Aug 16, 2012
Coming out of last year’s disruptions in production and the supply chain due to the twin tragedies of the tsunami and flooding in Thailand, Toyota (NYSE:$TM) posted better than expected Q1 results for FY 2013. The Automaker’s net revenue jumped 60% to 5,501.5 billion yen, owing to strong performance in Japan and North America. Despite coming from low base from previous quarter, its operating income rose to 353 billion yen against a 108 billion yen loss the previous year, with net income amounting to 290.3 billion yen, or $3.1 billion USD. These results are a direct result of their ability to sell cars even in the face of a global slowdown and raised guidance on car sales by 2.5% for CY 2012 9.76 million. Gross profit margin (after excluding depreciation and R&D expenses) was strong at 21.9%.
Toyota regained its top spot over taking General Motors (NYSE:$GM) as the largest auto selling company in the world. 2.27 million vehicles in the quarter left dealer lots, which is an increase of 85.8% the same period in 2011. In its biggest market, North America, it sold staggering 141% more cars, helped by two and a half fold increase in production in the region. They achieved this even in the face of improving quality from U.S. manufacturers like Ford (NYSE:$F) and the hostility of the Obama administration which has worked tirelessly to publicly erode Toyota’s brand loyalty with U.S. consumers, some of which was earned. That said, it is on pace to sell more cars in N. America than they have since 2008.
Toyota’s 14.4% of the U.S. market YTD in the U.S. still puts them lower than their pre-financial crisis levels, but they have completely erased the losses due to last year’s events. Honda (NYSE:$HMC) is seeing an acceleration of their market share, topping the 10% mark in the U.S. in July. Their emphasis on extreme fuel economy and great small cars like the Fit and the venerable Civic have put them in a good position to handle structurally high gas prices.
Unlike Ford, who did nothing but complain about selling cars in Europe, Toyota increased sales by 20%. But, Europe is not a huge market for them and 2011 sales, in spite of the problems rose 2% in 2011. While Toyota refused to raise income guidance along with vehicle sales projections, the company’s performance in coming months in Europe will likely make or break their guidance figures.
Toyota’s loyalty to producing cars in Japan, which accounts for 40 percent of total production compared to 25% for Honda and Nissan, is a concern but that is also rapidly changing. The key to their bottom line growth will be their investments in their ASEAN neighbors where production costs are lower and whose markets are some of the fastest growing in the world, namely Thailand (AMEX:$THD) and Indonesia.
The strong Yen (AMEX:$FXY) is both a blessing and a curse as raw material imports are helped and price competitiveness overseas is hindered. Ultimately it will be the cost of shipping cars around the world at structurally high oil prices that will force Toyota and others to produce more locally, as will shifting the bulk of their sales closer to home. To that end Toyota is looking to increase its sales proportion in emerging markets to 50% by 2015 versus the 45% they represent now. Asia, ex-Japan, is the growth story for all automakers. Therefore it is developing eight new compact models targeting the countries like China, Brazil, Indonesia, India (AMEX:$EEM) and other developing markets. Their joint venture with Kirkostar Motors has an engine plant shipping its first product this month while the all-Japan built Camry is being introduced as a premium car for India.
Toyota is trading at 12 times forward earnings and has paid 1.8% in dividends in the past year. With a return to profitability and rising sales and market share that yield will likely rise as the dividend paid becomes less volatile. Investors will be looking for yield now that safe haven U.S. and Japanese bonds have been pushed to historic lows and savings rates will remain near 0%. Toyota will receive strong bidding because of this in the face of economic uncertainty.