TOKYO -- Nissan Motor Co. Ltd. posted a worse-than-expected 5.5 percent drop in quarterly operating profit on Friday as a price war took the shine off buoyant U.S. sales, and it kept its forecast for flat full-year earnings despite a weakening yen.
After years of rapid profit growth, Nissan, 44 percent-owned by France's Renault SA, has projected a sharp slowdown citing a string of risks such as intense competition in the United States, high commodity prices and volatile exchange rates.
While the yen's sharp weakening will cushion much of the blow, Chief Executive Carlos Ghosn said the risks had grown since Nissan last unveiled its quarterly report card, casting a cloud over profitability for the whole industry.
"I would say that three months on, the risks that we have outlined look even bigger," he said, citing unprecedented discounts in the United States during the summer, a stubborn rise in raw materials prices and still-high U.S. interest rates.
"On top of this we have the unfortunate tragedies from hurricanes, earthquakes and floods (around the world). All of this has so far made the year 2005 a very challenging year for car manufacturers," he told Reuters in an interview.
Analysts agreed the next six months looked bleak.
"Automakers face some risks in the second half, especially in North America," said Hideo Ueki, chief investment officer at UBS Global Asset Management Japan.
He said Japanese automakers would likely succeed in grabbing a bigger share of the U.S. market as local brands struggle, but that a move towards cheaper and smaller cars would trim margins.
For July-September, Nissan, maker of the Maxima and Micra models, posted an operating profit of 205.2 billion yen ($1.78 billion), squeezing its margin to 8.7 percent from 10.3 percent a year before.
Net profit rose 8.1 percent to 125.0 billion yen after the company booked a special one-off loss the year before.
Second-quarter operating profit had been forecast at 233 billion yen and net profit at 137 billion, according to consensus estimates from eight brokers surveyed by Reuters Estimates.
Revenue climbed 11.5 percent to 2.346 trillion yen, as global sales volume jumped 15.6 percent to 955,000 vehicles despite the launch of just two new models in the first business half.
For the current fiscal year that ends next March -- a thin year for new products with only four more planned -- Nissan kept its forecast for operating profit at 870 billion yen ($7.54 billion), a rise of 1 percent.
The net profit forecast is also unchanged at 517 billion yen, up 0.9 percent from last year.
Nissan maintained its assumptions for the dollar and euro to average 105 yen and 130 yen respectively for the year.
'SAME STORY EVERYWHERE'
A day earlier, domestic rival Honda Motor Co. also posted a surprise fall in second-quarter operating profit, hit by a surge in U.S. sales incentives, although full-year forecasts were lifted due to a weaker assumption for the yen.
"You're going to see the same story everywhere," Ghosn said, referring to the pressure on profitability.
Still, Nissan, Honda and top Japanese carmaker Toyota Motor Corp. are doing better than U.S. rivals General Motors and Ford Motor Co., which sank deep into the red in the past quarter as sales costs ballooned.
With competition heating up in the stagnant U.S. market, Ghosn said he expected the risk on profits from sales incentives there to remain at least over the next two years, while pricing pressure was also intense in Europe and China.
But Ghosn, who also heads partner Renault, said the picture should improve for Nissan next business year, when it plans to launch 10 new vehicles worldwide, including the Versa compact car in the United States.