TOKYO -- Japan's Fuji Heavy Industries Ltd., the maker of Subaru cars, reported on Thursday an unexpected gain in quarterly operating profit but painted a gloomy picture for the near term due to tough competition and a weak dollar, sending its share price down 5 percent.
Fuji Heavy, owned one-fifth by General Motors, had mapped out a five-year growth plan that would have seen operating profits more than double by the year to March 2007 from last year, but instead slashed those targets, admitting it had been too optimistic with its prospects.
"Our reading of the market and demand had been too hopeful when we launched new cars," President Kyoji Takenaka told a news conference, noting actual volumes fell about 10 percent short of projections during the first three years of the plan. "The competitive environment and currency rates were also tougher than we anticipated, and this coincided with a rise in raw materials prices," he said.
For the year ending March 2006, Fuji Heavy forecast operating profit to fall 26 percent to 31 billion yen ($293.2 million), far short of a mean projection of 41.33 billion yen in a survey of 16 analysts by Reuters Estimates.
The maker, known for all-wheel-drive off-roaders, projected its global car sales to stay flat at 582,000 units this business year, but expects revenue to rise 1.6 percent to 1.47 trillion yen driven by higher-margin models such as the new B9 Tribeca premium sport-utility vehicle launched in its key U.S. market.
But it said an assumed 3-yen weakening in the dollar to 105 yen, a rise in startup and marketing costs for the B9 Tribeca, higher raw materials costs and other factors would lower profits.
It expects net profit to fall 18 percent to 15 billion yen.
In the final January-March 2005 quarter, net earnings turned to a loss of 2.5 billion yen, as expected, after Fuji Heavy had revised its estimate last month citing a special loss mainly from a delay in an aircraft-related project.
At the operating level, fourth-quarter profits grew 5.9 percent to 15.5 billion yen to beat market estimates of 13.84 billion yen, even as sales fell 3.7 percent to 396.1 billion yen.
But investors focused on the bleak profit outlook, pushing Fuji Heavy shares down by 5.1 percent to 467 yen by 0537 GMT after they rose to 495 yen before the news.
MID-TERM TARGETS HALVED
With the tough environment set to persist, Fuji Heavy more than halved its target for 2006/07 operating profit to 50 billion yen from 91 billion. It expects net profit at 27 billion yen instead of 48 billion, assuming the dollar stays around 105 yen.
Among Japanese auto makers, Fuji Heavy is especially vulnerable to a dollar weakening since it sells more than a third of its cars in North America.
To better hedge against a weak dollar, Fuji Heavy is planning to export its U.S.-built B9 Tribeca to Japan, Europe and Australia. Takenaka said that would start next year, disclosing a timeframe for the first time.
Fuji Heavy also said it would launch a new minicar in Japan one year ahead of schedule in 2006 to beef up sales. A planned rollout of a hybrid car next year, on the other hand, would be delayed until 2007 or later, it said.
To secure stable growth beyond the current five-year plan, the company said it would aim to cut costs by about 100,000 yen ($945) per vehicle, explore growth opportunities in the emerging Eastern and Central European markets, and gradually lift the number of U.S. dealerships to 630 from 581 in 2004. With 630 showrooms, we aim to meet our long-time goal of selling 250,000 vehicles a year by 2009 or 2010," Takenaka said.