TOKYO -- Subaru reported a 42 percent plunge in operating profit in the latest quarter amid falling wholesale volume, surging warranty outlays and a big hit from foreign exchange rates.
Operating profit dropped to 57.8 billion yen ($530 million) in the fiscal third quarter ended Dec. 31, the automaker said on Wednesday in its earnings report.
Net income declined 42 percent to 43.4 billion yen ($398 million).
Revenue fell 2.3 percent to 878.9 billion yen ($8.06 billion) in the period, as worldwide wholesale volume fell 5.9 percent to 267,200 million units.
In announcing the results, CFO Toshiaki Okada said higher costs to cover recalls, including a callback to fix coil springs, took a 29.3-billion-yen ($268.7 million) bite out of quarterly results.
Unfavorable foreign exchange rates delivered another 13-billion-yen ($119.2 million) blow.
The parent company's profit woes contrast with the seemingly invincible face of Subaru in the United States, the Japanese automaker's biggest and most important market.
Subaru's U.S. sales climbed 2.9 percent to 700,117 in 2019, and the company forecasts a 4 percent increase to 725,000 units in 2020. Attaining this year's target would represent a remarkable 12th year in a row of record U.S. sales for the all-wheel-drive niche player.
But even as U.S. retail sales increased, U.S. wholesale volume declined 5.2 percent to 183,700 vehicles in the three months to Dec. 31.
Western European wholesale shipments more than doubled to 12,700 vehicles, while volume in the home market of Japan fell 28 percent to 26,700.
Subaru books parent-company earnings from its wholesale deliveries.
Okada said Subaru made progress reining in incentive spending, thanks partly to the introduction of the redesigned Legacy sedan and Outback crossover.
For the full fiscal year ending March 31, overall incentive spending should drop 34.7 billion yen ($318.2 million), he said.
Subaru kept its earnings outlook unchanged for the current fiscal year ending March 31.
The automaker sees operating profit increasing 21 percent to 220 billion yen ($2.02 billion), while net advances 15 percent to 163 billion yen ($1.49 billion).
Subaru predicts results will bounce back thanks to an uptick in business in the January-March quarter amid strong demand for the redesigned Legacy and Outback and the Ascent crossover.
"Our January sales in the U.S. surpassed those of last year, so we think our U.S. sales have been going well, and we believe this trend will continue into fiscal 2020," Okada said.
A big expected falloff in quality costs will also help the bottom line, Subaru said.
But Subaru nonetheless trimmed its fiscal-year wholesale delivery outlook.
It now predicts global wholesale shipments to increase 4 percent to 1.04 million vehicles. In November, it had forecast an increase of 5.7 percent to 1.06 million vehicles. U.S. sales will advance 6.1 percent to 700,000 vehicles. Subaru had earlier expected U.S. wholesale to climb 6.4 percent to 701,800 in the current fiscal year.
With regard to the coronavirus outbreak in China that has forced production shutdowns across the industry, Okada said Subaru was still investigating its possible impact on the company's supply chain. But he said Subaru sees no impact on output from its Japanese or U.S. factories.
Naoto Okamura contributed to this report