TOKYO -- Japanese automakers are expected to report mixed quarterly results, but profits will likely be better than they initially envisaged thanks to the yen's limited drop and upbeat U.S. sales, boding well for full-year prospects.
China's 2.1 percent revaluation of the yuan on Thursday has thrown some uncertainty into the picture as it swooped the yen up with it, but analysts said any direct impact would be limited.
"Japanese auto makers see China as a consumer center rather than a production base," said Merrill Lynch auto analyst Tatsuo Yoshida, adding that given the scale of their global business, the impact from the revaluation would be minimal.
After posting record profits in 2004-05, Toyota Motor Corp., Nissan Motor Co. and Honda Motor had been bracing for a bumpier ride this year. The risks include heightened price competition, a stronger yen and higher materials prices, as spending to boost production goes into high gear.
But healthier-than-expected North American sales, retreating prices of steel and other raw materials and the dollar's limited fall from the year before mean first-quarter results due out from next week could kick off a stronger year than first thought.
Toyota and Honda are both expected to report declines of less than 1 percent in April-June operating profit, according to consensus estimates. Nissan is forecast to post a 12 percent jump as strong U.S. and domestic sales made up for a slump in Europe.
Japan's top three auto makers continue to whizz past U.S. rivals General Motors and Ford Motor Co., which this week reported dismal second-quarter results on steep losses in their discount-driven North American automotive operations.
U.S. SALES STILL STRONG
Hyper-competition in the United States has squeezed margins at the Detroit giants, which are also struggling with higher costs and a cut in their credit ratings to "junk" status, but it has caused little harm to Japanese makers so far.
U.S. sales at Toyota and Nissan continued to grow at a double-digit clip, even as selling incentives were kept in check in contrast to escalating discount schemes at the U.S. Big Three.
UBS analyst Takaki Nakanishi said Toyota's recent plans to hike prices in the United States were also encouraging as it eliminated fears of thinner returns from the strategic sales of hybrid vehicles and other low-margin models.
"This...represents an important step towards medium-term profit growth and away from the threat of margin erosion," he wrote in a note to clients.
Honda's U.S. sales fluctuated as key vehicles like the Civic and Pilot approach the end of their model life, but still were better than anticipated.
High gasoline prices may have helped, prompting drivers to switch from U.S. brands' bigger, gas-guzzling light trucks to more fuel-efficient alternatives offered by the Japanese.
That combined with a weaker-than-expected yen prompted UBS to upgrade its rating on the Japanese auto sector this week and lift its earnings forecasts for many companies.
Fifth-ranked Mazda Motor Corp. is expected to report an 18 percent jump in first-quarter operating profit, and Suzuki Motor Corp. is forecast to post a 1.3 percent gain.
No projection was available for Mitsubishi Motors Corp., which expects another loss this year.
YUAN NEWS WELCOMED
The dollar averaged around 107 yen during April-June, 3 yen weaker than the year-earlier quarter but stronger than most companies' assumption of 105 yen for the full business year.
The yuan revaluation, along with Malaysia's subsequent dropping of its ringgit peg, prompted the biggest one-day rise in the yen against the dollar in more than three years on Thursday, but the U.S. currency is still buying around 111 yen.
The dollar/yen's slide shot down auto makers' shares on Friday, but executives generally welcomed the yuan's revaluation.
"I don't see the dollar falling apart against the yen on the back of this," Fujio Cho, vice chairman and former president of Toyota, said late on Thursday. "This is not a surprise and I would say it is a positive step.
Nissan offered a similar view, saying a higher yuan would lift the value of its Chinese assets, as well as earnings there when converted back into yen.
A stronger yuan would also make importing parts into China cheaper, while on the negative side it would raise the prices of just a few auto-related products exported from China.
The euro, meanwhile, gained a few yen from the previous year to an average 136 yen for the quarter, compared with assumptions of 130-135 yen. It is now fetching around 135 yen.