Toyota is raising guidance even if first-quarter net income plummets

Toyota on Thursday raised its annual net profit guidance, forecasting a profit boost from the weaker yen even after first-quarter net profit was hit by pandemic-related supply chain issues.

Global chip shortages, Covid-19 lockdowns disrupting Chinese factory production and Russia’s invasion of Ukraine are weighing heavily on the auto industry.

But Japanese companies like Toyota that sell products overseas have also benefited from a cheaper yen, which has hit a 24-year low against the dollar in recent months.

The world’s top-selling automaker now forecasts annual net income of 2.36 trillion yen ($17.6 billion) — up from its previous estimate of 2.26 trillion yen, but still down 17 percent from last year’s record results.

For the three months to June, the auto titan said net income fell 17.9 percent year-on-year to 736.8 billion yen.

“Despite the positive exchange rate effects of the weaker yen, the large impact of lower sales volume due to supply shortages and higher commodity prices led to a decline in operating income,” the company said in the first quarter.

Meanwhile, “the revision of exchange rate assumptions had a positive impact on the operating profit forecast,” it said.

Revisions to the projected impact of “rising material prices” and cost-cutting efforts would also cause operating income to fall this fiscal year, Toyota added.

Partly helped by the weaker yen, Toyota posted a record profit of 2.85 trillion yen for the full year 2021-22 in May.

The focus will now be on whether the company can meet its global production target of 9.7 million units for this fiscal year given the parts shortage, said Satoru Takada, an auto analyst at research and advisory firm TIW.

Three major automakers in Japan — Toyota, Nissan and Honda — have “been unable to revive production sufficiently” to meet consumer demand, Takada told AFP.

However, Toyota has so far been largely spared the worst of the crisis, he said, adding that the company “has customers waiting for its cars thanks to strong demand.”

The company forged stronger relationships with domestic suppliers after the 2011 earthquake and tsunami in Japan, which analysts say have helped weather a pandemic-triggered shortage of semiconductors — an essential part of modern cars — better than its peers.

However, due to chip shortages and pandemic-related factory closures, it has been forced to repeatedly adjust production targets.

Added to this is the uncertainty resulting from Moscow’s war in Ukraine. Toyota said in March it would cease operations at its only factory in Russia and stop shipping vehicles to the country.

Ahead of the earnings announcement, SC Capital called Toyota’s full-year outlook “the lowest in the industry” and forecast a sharp upward revision later this year as semiconductor supplies become more plentiful.

“Toyota’s first quarter…is expected to be bad. But the consensus is far too low for the rest of the year as the supply shortages from Shanghai ease from Q2 and chip inventories rise more than expected,” SC Capital said in a SmartKarma comment.

“Anyone who has spoken to the company knows that the second quarter will deliver a V-shaped recovery and an upward revision for the full fiscal year.”