Toyota reports lower-than-expected earnings

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From Times staff writer Martin Zimmerman:

Times are tough in the U.S. auto market. Just ask Toyota.

The Japanese automaker, in a race with General Motors to be the world’s largest car company, reported lower-than-expected earnings for its fiscal fourth quarter today as a strong yen and weak U.S. sales took their toll.

Worse, the company said it expects its profit to fall 27% this year and forecast a 5% drop in annual sales — its first in nine years.

The results prompted Toyota President Katsuaki Watanabe to promise to look for ways to cut costs.

“We are facing a severe business environment,” Watanabe said in a statement. “However, Toyota considers this headwind as a valuable opportunity to turn it into a more flexible and stronger company.”

Investors weren’t pleased. Toyota’s New York-traded shares slid more than 5% on the news before recovering a bit.

“It tells you that the slowdown [in the U.S. auto market] is not limited just to domestic brands, said Efraim Levy, industry analyst at Standard & Poor’s. “Even the Japanese brands are not unscathed.” Levy cut his rating on Toyota today from “buy” to “hold” and lowered his 12-month price target on its stock to $108 a share from $121.

U.S. light vehicle sales, which include cars, pickups and SUVs, are down almost 8% this year through April. Levy is forecasting 2008 industry sales of 15.1 million vehicles in the U.S., 1 million fewer than last year.

Toyota (along with fellow Japanese automakers Nissan and Honda) bucked the trend by notching sales gains last month. But much of those gains came in small, fuel-efficient cars, which typically provide much thinner profits than big pickups and SUVs.

That calculus has been especially painful for the Detroit Three, which are more dependent than Toyota on trucks and SUVs. High pump prices have dramatically slowed sales of gas guzzlers, and all three U.S. automakers suffered double-digit sales declines last month.

“It’s a double whammy — lower volume and lower margins,” Levy said.

Like its American counterparts, Toyota reported strong results in non-U.S. markets. But North America accounts for about half of Toyota’s operating profit and a third of its sales.

Besides high gas prices, the decline in U.S. sales is tied to the slump in the housing industry, which has been especially damaging to pickup sales, and to general worries about economic weakness and job losses.

Toyota is under additional pressure from a strong yen, which is now trading at 103 to the dollar compared to around 120 a year ago. That drives up the cost of imports. Although Toyota produces a significant percentage of its vehicles at North American factories, it still imports a significant percentage of its vehicles from Japan — including the Prius hybrid, which has been a big seller this year.

Rising raw material prices are also taking a toll, especially for steel, analysts said.

Toyota reported a net profit for its fiscal fourth quarter ended in March of 316.8 billion yen ($3.05 billion). That was down 28% from a year ago and the company’s first quarterly profit drop in almost three years. Sales rose 3.8% to 6.567 trillion yen ($63.14 billion).

Money & Co. blogger Tom Petruno is on vacation this week. He returns May 12.