TOKYO -- Toyota Motor reported a surprisingly sharp drop in quarterly profits on Wednesday but offered a more bullish full-year outlook, gearing up Japan's auto industry for another year of growth that looks set to gather tailwinds from a stronger dollar.
Results from Toyota, Mazda Motor and Subaru-maker Fuji Heavy Industries for the April-June first quarter wrapped up a generally solid start to the year for Japanese automakers, and analysts said the picture could get better.
"I think it's a pretty good start," said Christopher Richter, a senior analyst at CLSA Asia-Pacific Markets.
"All of us went into the year thinking it was going to be a pretty dull one weighed down by heavy investment spending, but that could change with currencies where they are now."
Following last week's robust results from Nissan Motor and Honda Motor, top-ranked Toyota said it aimed to boost profits in the year to next March -- rather than simply match last year's record as it said in May -- lifting its global sales forecast by 1.5 percent to 7.97 million vehicles.
"Production and sales volumes are healthy," Senior Managing Director Takeshi Suzuki said. "If exchange rates stay at current levels ... we'd be looking to achieve higher revenue and profits this year."
Toyota, like most of its rivals, is assuming the dollar will average 105 yen for the business year, against around 111 yen now.
Sixth-ranked Mazda had the biggest profit increase among Japan's biggest auto makers, with a 14.2 percent surge in first-quarter operating profit to 22.82 billion yen ($204.8 million) thanks to brisk domestic and North American shipments.
Fuji Heavy was the anomaly, posting a drop in revenue in April-June on weak domestic and U.S. sales. But falling costs helped it to secure an operating profit of 1.15 billion yen after breaking even in the same period last year.
ON A ROLL
Japan's top automakers are on a roll all over the world -- especially the tough U.S. market -- even as Detroit's General Motors and Ford Motor face declining earnings as they buy market share with profit-eroding sales incentives.
A lengthening and escalating price war waged by GM, Ford and DaimlerChrysler's Chrysler arm in the key U.S. market is set to turn competition up a notch, but Toyota said it planned to avoid incentives as much as possible with the help of new models like the Tacoma pickup and Avalon sedan.
The U.S. Big Three are extending their pricing programs that offer consumers vehicles at the same low price employees pay, catering to a nation of buyers increasingly addicted to rebates and other incentives.
"I think we're putting up a good fight," Suzuki said.
"Our products are being accepted not so much through incentives but through value. We believe we can keep this up and continue to grow our volumes."
Riding on its reputation for building reliable, high-quality cars, Toyota lifted its North American sales forecast for the 2005-06 business year to 2.5 million vehicles from 2.43 million.
Toyota, the world's most valuable automaker with a market capitalization of $137 billion, said first-quarter operating profit fell 9.7 percent to 405.13 billion yen ($3.64 billion) as an increase in investment spending outweighed brisk global sales.
That was short of an average estimate of six brokerages surveyed by Reuters Estimates of 443.33 billion yen.
But much of the fall was due to higher R&D and start-up costs for numerous expansion projects aimed at satisfying swelling demand, as well as a big valuation loss on interest rate swaps.
"Setting those two issues aside, we would have seen a pretty nice rise," said CLSA's Richter. He said Toyota's operating performance would have been similar to Nissan and Honda's without the front-loaded R&D costs and derivatives losses.
KEEPING THE LEAD
Japan's top three look set to keep their earnings lead over GM and Ford, which, weighed down by excess inventory and sales costs, lost money in their automotive operations last quarter.
"The (Japanese) auto sector in general is considered a winner and I think in terms of long-term investment prospects, we can remain bullish," said Takashi Kamiya, chief strategist at T&D Asset Management.
Underscoring the popularity of its cars, Toyota has opened several new factories so far this year including in the Czech Republic, Poland and Mexico. Those will be followed by plants starting up in Texas, Russia, Canada and other sites over the next few years.
Fuelled partly by red-hot demand for its IMV (Innovative International Multipurpose Vehicles) series of light trucks built in Thailand, Indonesia, Argentina and South Africa and exported to 140 countries, Toyota is also expanding output capacity at a number of existing plants.
Toyota shares ended the three months to June 30 down 1.2 percent at 3,970 yen, compared with a 0.7 percent fall in the transport sector subindex. Fuji Heavy tumbled 12.7 percent to 462 yen.
Mazda climbed 12.4 percent to 417 yen during the quarter and has since gained further ground, closing at 457 yen after the results on Wednesday, down 1.08 percent on the day.