Aug. 3 (Bloomberg) -- Toyota Motor Corp., the world's biggest automaker by market value, said first-quarter profit rose 29 percent to a record on cost cuts and rising sales of Camry cars and Prius gasoline-electric vehicles.

Net income rose to a better-than-expected 287 billion yen ($2.6 billion), or 86.22 yen per share, in the three months ended June 30, from 222.6 billion yen, or 64.83 yen per share, a year earlier, the Toyota-city, Japan-based carmaker said in a statement. Sales rose 10 percent.

Toyota's profit was twice that of General Motors Corp., the world's largest carmaker by sales, and its revenue of $40 billion closed to within $9 billion of GM and $3 billion of Ford Motor Co. President Fujio Cho, 67, is cutting costs by 200 billion yen annually, while maintaining Toyota's lead in quality surveys.

``It's really difficult to find a fault with Toyota,'' said Norihito Kanai, an analyst at Meiji Dresdner Asset Management Co., which manages the equivalent of $2.5 billion in stocks including Toyota, in Tokyo. ``It is a well balanced company and is on its way to become the biggest automaker'' in the world.

Toyota raised its full-year unit sales forecast to 7.2 million units, 3 percent higher than its May outlook and 7 percent more than last fiscal year.

The carmaker's profit beat the 251 billion yen median estimate of four analysts polled by Bloomberg. Last fiscal year, Toyota posted record earnings of 1.16 trillion yen, becoming the only Japanese company to post more than 1 trillion yen in profit.

`On Track'

``We want to make sure that we secure what we earned in the year that just ended,'' said Toyota Senior Managing Director Takeshi Suzuki said at a Tokyo press conference. ``The first- quarter result shows that we are on track.''

Toyota shares traded in Frankfurt rose 0.4 percent to 33.25 euros, reversing a decline of as much as 1.9 percent. The company's Tokyo-traded stock, which closed for trading before the earnings were announced, has risen 20.7 percent this year, performing 16.6 percentage points better than the Nikkei 225 Stock Average.

Toyota's first-quarter sales rose to 4.5 trillion yen in the three months ended June, from 4.09 trillion yen last year. Global unit sales rose 12.4 percent to 1.79 million vehicles, led by 66 percent growth in Asia.

``Toyota always beats expectations,'' said Koji Endo, a Credit Suisse First Boston Japan Inc. analyst, who says the stock will `` outperform'' other auto industry stocks.

Camry

Toyota sold 572,000 vehicles in the first quarter in North America, its most important sales market, 5.6 percent more than last year. Its Camry compact car was the No. 1-selling car in America in June, with sales rising 6.8 percent to 37,603 units. The automaker led a June 29 reliability survey conducted by J.D. Power & Associates for three-year-old cars and trucks.

The Prius gasoline-electric car reported its best-ever monthly sales of 4,210 units in June. The so-called hybrid cars, which emit 90 percent less tailpipe exhaust than the average new car with same-size engine, are so popular that buyers wait as long as eight months to get a new unit and sales on EBay Inc.'s Internet auction site cost a third more than the list price.

Toyota, the world's biggest maker of hybrid cars, said it will expand production by half to 15,000 units a month in the first half of 2005 to meet U.S. demand.

In Asia, Toyota sold 202,000 vehicles in the first quarter, led by models such as the Soluna Vios compact cars in Thailand and Taiwan. Sales in Europe rose 5.6 percent to 247,000 units in the same period.

IMV

Toyota will start building 200,000 pickup trucks a year in Thailand later this year, and 70,000 multipassenger vehicles in Indonesia as part of its Innovative International Multipurpose Vehicle project, or IMV, to make five new models in Asia, South America and Africa, said Suzuki.

China vehicle sales, including the Vios and Corolla compact cars, aren't included in Toyota's group unit sales as they are produced by a venture in which Toyota owns 50 percent, Suzuki said.

Toyota's China vehicle sales rose 23 percent in the first six months of 2004, Suzuki said. Toyota's profit from its affiliates, including those in China, rose 64 percent to 34.7 billion yen in the quarter, the company said.

Toyota's market share in Japan, excluding those of minicars, rose to 46.1 percent in the quarter from 44.9 percent a year ago.

Comparing Profits

Nissan Motor Co., Japan's second-largest carmaker, last week said profit rose 4.5 percent to $1.1 billion in the first quarter ended June. Honda Motor Co., Japan's third-largest carmaker, reported a 12-percent profit gain in the same period to $1.05 billion.

``Japanese carmakers are doing well in the U.S.,'' said Kunihiko Shiohara, an analyst at Goldman Sachs Japan Inc. in Tokyo, before Toyota announced its results.

Toyota's first-quarter operating profit, or sales minus the cost of goods sold and expenses, rose 32 percent to 449 billion yen from 341 billion yen the year earlier. Current profit, or pretax profit from operations, rose 27 percent to 470 billion yen, from 371.3 billion yen, the carmaker said in a statement.

Toyota gained 40 billion yen from cost cuts in the first quarter by sharing more parts across its range of models and using factories more efficiently. Revamped designs are cheaper to make because they share parts and use more efficient production techniques, said Suzuki.

The carmaker expects to cut costs by 200 billion yen in the year ending March 2005, 80 billion yen in the April-September period and 120 billion in October-March period, he said.

Japanese automakers have been gaining U.S. market share while spending less on incentives than rivals such as General Motors, Ford and DaimlerChrysler AG's Chrysler unit.

Lower Incentives

Toyota spent $3,377 in incentives on every vehicle sold in the U.S. last month, lower than the industry's average of $3,991 per vehicle, according to CNW Marketing Research in Oregon.

Toyota's U.S. market share in the April-June was 12 percent, up 0.9 points from the same period year earlier.

The automaker based its earnings for the quarter just ended on exchange rates of 110 yen per dollar and 132 yen per euro. That's a stronger rate than 119 yen per dollar and 135 yen a euro in the year-earlier quarter. The carmaker had a foreign currency loss of 70 billion yen in the first quarter.

Toyota's annual operating profit drops about 20 billion yen for every 1 yen the yen gains against the dollar, according to an estimate by Credit Suisse First Boston Japan Inc.

Yen Threat

The yen's rise against the dollar may erode Toyota's profit in the second half of the year, analysts in the Bloomberg survey said before first-quarter results were released.

They predict the currency may strengthen about 7 percent to 105 yen against the dollar and Toyota's full year net income may fall 7.8 percent to 1.07 trillion yen.

Sales in the current year will probably rise 2.6 percent to 17.8 trillion yen on gains in Asia and Europe.

``Toyota doesn't release forecasts because there are too many uncertainties such as the foreign exchange rate and interest rates,'' Suzuki said, declining to elaborate.

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

Last Updated: August 3, 2004 07:48 EDT