Toyota Ending Five Year Buyback Drought as Cash Pile Expands

Toyota Buying Back Stock for First Time Since 2009 as Cash Grows
A worker performs a round of quality control checks on a Toyota Motor Corp. Tacoma truck at the company's manufacturing facility in San Antonio, Texas, U.S. Photographer: T.J. Kirkpatrick/Bloomberg

Toyota Motor Corp., the world’s largest automaker, said it will buy back stock for the first time in five years as its cash pile swells and profit climbs.

Toyota will repurchase as many as 60 million shares, equivalent to a 1.9 percent stake, for 360 billion yen ($3.5 billion), according to a statement yesterday. The company will retire about half of the shares by June. Toyota rose 2 percent to close at 5,731 yen in Tokyo trading, while Japan’s benchmark Topix Index climbed 0.4 percent.

The carmaker’s growing cash pile fueled calls from the likes of Takaki Nakanishi, Institutional Investor magazine’s top-ranked Japanese auto analyst, for the company to return money to shareholders or invest in new factories. The maker of the Camry sedans and Prius hybrids has forecast a record 1.9 trillion yen profit for the year ending March 31.

“They have the cash and this is still a conservative amount that they’re buying back,” Frank Schwope, a Hanover-based analyst at NordLB who recommends buying Toyota, said by telephone. “This is good news for the company and ultimately the shareholders.”

Toyota shares have declined 11 percent this year, compared with a 9.6 percent drop in the Topix. The automaker last bought back stock in February 2009.

The buyback coincides with President Akio Toyoda starting the Toyota Mobility Foundation, which will support global nonprofits and researchers’ work on improving transportation systems in developing markets, the company said.

Mobility Foundation

“These nonprofit funds can sometimes be very effective and sometimes not so,” Steve Usher, an analyst at JI Asia in San Diego, said by telephone. “The intention is correct and is positive. From an investment standpoint, the impact of the share buyback is far more significant.”

In forming the foundation, Toyota is following efforts at other automakers to invest in mobility technology as growing megacities, pollution and gridlock pose risks that could lead to global car sales peaking, which IHS Automotive estimates will occur in the next decade.

Ford Motor Co. Executive Chairman Bill Ford formed an investment company called Fontinalis Partners in 2009 that has supported bike-sharing service Zagster and ParkMe parking-assistance software. General Motors Co. created a subsidiary called GM Ventures the following year to invest in new technologies.

Toyota plans to sell 30 million of its shares to the foundation at a discounted price of 1 yen apiece so that the charity can use the stock to fund future activities. The company said it will provide about 3 billion yen to 4.5 billion yen to the foundation each year, with the plan pending approval from shareholders at the annual general meeting in June.

Shareholder Returns

Toyota has said it aims to pay 30 percent of net income as dividends. The company’s cash, equivalents and short-term investments climbed to 3.57 trillion yen by the end of December, from 2.77 trillion yen a year earlier.

“Toyota has traditionally relied on dividends to return value to shareholders, but these moves demonstrate the possibility that it will also consider share buybacks as another option for enhancing shareholder returns,” Kei Nihonyanagi, a Tokyo-based analyst for Bank of America Corp.’s Merrill Lynch, said yesterday in a report.

Toyota has said it won’t build new car factories until at least 2015 as it focuses on improving efficiency at existing plants. With the carmaker reluctant to spend on additional capacity, Nakanishi, an analyst for Jefferies Group LLC, said last month that the carmaker’s shareholder return policy was “the most significant driver” of its stock performance.

Stock Performance

“Increased expectations of further yen depreciation, appropriate growth in investment, and enhancements to intrinsic product strength will be needed before we can look for share price performance to turn up,” Nakanishi wrote in a Feb. 21 report.

Toyoda, 57, has steered the company founded by his grandfather through a recovery after a series of crises. After Lehman Brothers Holdings Inc.’s collapse in 2008 led to a global recession that dented auto demand, the automaker recalled more than 10 million vehicles the next two years to fix problems related to unintended acceleration.

This month, Toyota agreed to pay a $1.2 billion fine, the largest penalty of its kind imposed on any automaker, to end a U.S. criminal probe after the Department of Justice said the company intentionally concealed information and misled the public about safety defects in its cars.

In each of the last two years, Toyota has rebounded by outselling all other automakers and the company is targeting more than 10 million deliveries this year.

“The significance is not as much in the size of this buyback as it is in the very fact that it’s happening,” said Usher, who has a buy rating on the company. “It shows confidence on the part of Toyota that it’s back on track and that it can afford to spend on share buybacks.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE