Toyota Bounces Back Raising its Sales Target
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After regaining its crown of being the global auto sales lead in the first half, Toyota Motor (NYSE: TM) posted handsome numbers in the first quarter 2012. The Japanese carmaker witnessed its best quarterly operating profit in the past four years. All credit goes to the massive demand for its Camry and Prius in its two prime markets: US and Japan, where the car manufacturer is working hard to meet its pent-up demand. The company’s impressive results overshadowed the results of its Japanese rivals Honda Motor (NYSE: HMC) and Nissan Motor that reported their quarterly results last week.
What’s actually striking about the Camry maker is its quick recovery from the third position to the top. Let’s take a closer look at how and why the numbers grew from dull to dynamic in a year’s time.
A Snapshot of the Growth
Toyota’s quarterly sales jumped 60 percent to $70.5 billion. The automaker’s sales units almost doubled to 2.3 million units compared to a year ago quarter when its production units suffered from the natural disaster at Japan, followed by a flooding in Thailand. The company posted an operating profit of $4.51 billion, while its net income for the quarter was $3.7 billion, beating the average estimate of seven analysts by 14 percent.
Regaining momentum in various markets
The company witnessed a sales growth in North America, Japan, rest of Asia and the debt ridden European market as well. The rebound in the US auto industry is particularly critical for the company as Toyota draws massive profits from here. Its market share grew to 14 percent this year from 12.9 percent in 2011.The number of units sold in North America increased by 387 thousand units in the quarter to 663 thousand units in comparison to the last year comparable period. Similarly, the Japanese market experienced an increase of 285 thousand units which totaled to 577 thousand units of vehicle sales. The rest of Asia accounted for 418 thousand units of vehicle sales, 159 thousand units more than the previous year period.
What more?
The European crisis absorbed the profits for its Detroit rival General Motors (NYSE: GM), pulling it down by 38 percent to $1.85 billion. Even Ford’s (NYSE: F) bottom line went down 57 percent to $1.04 billion from a year ago. In contrast, Toyota witnessed an increase in its operating income in the region with sales increasing by 35 thousand units, totaling to 209 thousand units.
However, there is something else that is biting away chunks of profits from the lead automaker’s pocket.
A concern
The strong yen has been corroding Toyota’s profits from its overseas business. It ate up as much as $513 million of the carmaker’s operating profits. The company therefore undertook cost cutting measures of about $897 million in the quarter to alleviate the adverse impact of the rising currency.
Though the concern still remains, Toyota looks pretty energetic setting targets for the rest of the year.
A higher target
Now that Toyota is back in form with attractive numbers in its financials and enormous demand for its cars, the company has lifted its sales target to 9.76 million vehicles in the year from its prior forecast of 9.58 million units. The current forecast is a rise of 23 percent from 7.95 million units that it sold in 2011. If the target is materialized, it would create a record for Toyota in its history of 75 years. Last time it achieved its sales target of 9.36 million vehicles back in 2007. Will it manage it again? In addition, the company plans to make 10.05 million vehicles this year, which would make it the first carmaker to cross the 10 million unit mark.
In all this the company shouldn’t forget about its challengers.
Fighting the foes
Toyota has already created a sales gap big enough to keep GM and Volkswagen AG behind in the year. The company may have witnessed hard times in the past, including the recall of 14 million vehicles that started three years back and the natural disaster that plagued its production units last year. But it recovered with full force stealing its US counterpart GM’s top position and pulling down the rank of Germany’s Volkswagen too. Also, its Europe sales were decent particularly at a time when its rivals stumbled, hurt by the falling demand in the region.
There’s however, one thing that the top car seller needs to work on. GM and Ford have been coming up with gas-electric hybrids and fully electric cars. This is an area of challenge for the maker of Prius, where it needs to work on fuel efficient cars primarily as quite a lot of advances are happening in this segment.
Concluding thoughts
Toyota has position itself at the top, attaining a fair lead against its rivals. However, Mr. Ijichi, a senior managing officer of Toyota, believes that the company needs ‘to remain cautious’ as several factors including the dull European economy, the still-strong yen and deceleration in the growth of emerging markets such China surround the upcoming quarter.
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