Feb. 2 (Bloomberg) -- Nissan Motor Co. Chief Executive Officer Carlos Ghosn cut its annual profit forecast to the first decline in seven years, after Japan's third-largest automaker said quarterly earnings fell 23 percent on higher raw-material costs and a lack of new models.

Net income dropped to 104.4 billion yen ($865 million), or 25.29 yen a share, in the third quarter ended Dec. 31 from 135 billion yen, or 32.84 yen, a year earlier, Nissan said. That trailed the 153.5 billion yen median estimate of five analysts in a Bloomberg survey. Sales rose 1.8 percent to 2.34 trillion yen.

Nissan, passed by Honda Motor Co. as Japan's second-biggest carmaker last year, said it will miss its vehicle sales target this year after introducing only one new model in the first half. Rising prices for steel and other commodities also hurt profit at Tokyo-based Nissan, 44.3 percent owned by France's Renault SA.

``Sales really suffered because of a lack of new models,'' said Atsushi Osa, who helps manage $4.1 billion at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Nissan had a tough quarter.''

The automaker cut its full-year profit forecast 12 percent to 460 billion yen from 523 billion yen. Nissan's net income for its fiscal year that ended in March was 518.1 billion yen. The quarterly drop in earnings was its first in six quarters.

Nissan's American depositary receipts declined $2.06, or 8.1 percent, to $23.50 at 4 p.m. New York time in Nasdaq Stock Market composite trading, their steepest one-day percentage drop since September 2001. They have gained 7.7 percent in the past year.

Shares of Renault in Paris slid 4 euros, or 4.2 percent, to 91.80 euros, the biggest drop since Nov. 17, 2005.

`Ghosn Shock'

Ghosn, who was sent from Boulogne-Billancourt, France-based Renault in 1999, led Nissan from a record loss to six consecutive record profits after becoming president in 2000.

``It's a Ghosn shock,'' said Koji Endo, a senior analyst at Credit Suisse Group in Tokyo. ``We can expect to see shares get hit on Monday.''

The cut in Nissan's forecast contrasts with Tokyo-based Honda, which raised its full-year profit forecast earlier this week. Honda's third-quarter net income rose 9 percent to 144.8 billion yen, aided by strong overseas sales and a weaker yen.

Raw Materials

Ghosn last month said rising steel prices will probably hurt the carmaker's profit this year. Higher costs for raw materials and energy cut the company's third-quarter operating profit by 21.8 billion yen. Declining margins due to falling demand for high-margin light trucks and sport-utility vehicles lowered operating profit by 41 billion yen.

``Against an environment of high raw material and energy prices, no pricing power and continuing weakness in mature markets, our industry faced many headwinds,'' Ghosn said in a statement. ``Additional actions will be taken to boost our performance during the coming months.''

The company will give details on its plan in April, he said.

Nissan's vehicle sales fell 3 percent to 795,000 cars and trucks in the quarter, led by declines of 16 percent in Europe and 6 percent in Mexico. Nissan's U.S. market share fell 0.1 point to 6.2 percent in 2006, while Toyota Motor Corp. gained 2.1 points and Honda rose 0.5 point, taking sales from General Motors Corp. and Ford Motor Co. Toyota is Japan's biggest automaker.

Misread Market

``We misread our main U.S. market,'' Joji Tagawa, corporate vice president, told journalists in Tokyo. ``We went for 15 months without any new Nissan-brand models and 18 months without any new Infiniti-brand models in the U.S.''

Sales of Nissan's light-truck models, which are almost 3 years old, declined 7.7 percent last year in the U.S., where the carmaker earns as much as 60 percent of annual operating profit. Passenger cars fell 3.3 percent.

``A big car company has always got to be introducing new models,'' said Edwin Merner, who oversees $1 billion as president of Atlantis Investment Research Corp. in Tokyo. ``Nissan has gone astray.''

Ghosn said the carmaker's U.S. sales for the 12 months ending in March would fall short of his goal of 1.1 million. In June he cut the sales target for Japan to as low as 800,000 vehicles from an original goal of 846,000.

Nissan is betting on 11 new or redesigned vehicles that it plans to introduce globally in the year starting April 1, including the Rogue small crossover, Ghosn said last month.

The carmaker introduced only one new model globally in the first half ending Sept. 30. Ghosn has said Nissan must improve its planning to bring out new models on a more regular basis.

The company also cut its operating profit forecast 11 percent to 773 billion yen.

``Nissan considers it a crisis when the operating margin is at 7.5 percent,'' said Ghosn in Tokyo. He reiterated that the company would maintain its dividend.

In the second half, Nissan started selling the new Versa compact car and redesigned versions of the Sentra and Altima sedans in the U.S. Nissan said it will commit to sell 4.2 million vehicles a year in the year ending in March 2009.

To contact the reporter on this story: Kae Inoue in Tokyo at kinoue@bloomberg.net

Last Updated: February 2, 2007 17:17 EST