Nissan Profit Misses Estimates on China Slump, U.S. Models

Nissan Motor Co., Japan’s second-biggest carmaker, reported third-quarter profit that fell short of analysts’ estimates, after sales tumbled in China and new models trailed competitors in the U.S.

Net income dropped 35 percent to 54.1 billion yen ($581 million) in the three months ended Dec. 31, from 82.7 billion yen a year earlier, the Yokohama, Japan-based company said in a statement today. That missed the 59.7 billion yen average of eight analyst estimates compiled by Bloomberg. Nissan kept its full-year earnings forecasts unchanged.

The results illustrate how the territorial dispute between China and Japan is overshadowing the benefits from a weaker yen for Nissan Chief Executive Officer Carlos Ghosn, who has repeatedly called for further yen depreciation. The automaker was also hurt after sales of the new Altima, its bestseller in the U.S., trailed the Camry and Honda Motor Co.’s Accord.

“Nissan has a big exposure in China and was hit hard by the protests,” said Kota Yuzawa, an analyst at Goldman Sachs Group Inc. “In the U.S., unfortunately because of the incentives war, the sales volume of new models is lower than the company’s expectation and my expectation.”

Nissan fell 0.6 percent to close at 987 yen in Tokyo trading before the earnings announcement. The stock has gained 22 percent this year, compared with the 7.3 percent advance in the Nikkei 225 Stock Average.

Missed Expectations

“Nissan’s performance in the third quarter did not meet our expectations,” Ghosn said in the statement. “Looking forward, we have important vehicle launches. We anticipate further yen correction.”

Still, the automaker kept its average exchange-rate assumptions for the fiscal year at 79.7 yen to the dollar and 101.8 yen to the euro.

The Japanese currency, trading near its lowest levels in more than two years, may end the year at 93 versus the dollar, according to the median of forecasts compiled by Bloomberg, as Abe’s administration seeks to fight deflation and revive Asia’s second-largest economy.

Tumbling Yen

The yen began tumbling in November as Prime Minister Shinzo Abe -- then running for office -- called for “bold monetary policy” to beat deflation and drive down the value of the yen. The Japanese currency this week fell to 94.06 per dollar for the first time since May 2010, on speculation Japan’s government will select a new central bank chief committed to boosting monetary easing.

Nissan gains about 20 billion yen in operating profit with every one-yen drop against the dollar, according to the company.

Toyota Motor Corp., the world’s largest carmaker, this week raised its profit forecast 10 percent to a five-year high of 860 billion yen, as a weakening yen raised the profits of Japanese cars sold overseas. The company also increased its estimate for operating income by 9.5 percent and revenue by 2.3 percent.

China Sales

Bucking the trend, Honda lowered its full-year net income forecast by 1.3 percent to 370 billion yen, citing a slower-than-expected recovery in sales in China and weakness in European demand.

Nissan’s sales in China fell 5.3 percent to 1.18 million units in 2012 and slumped by more than 30 percent in the October-to-December quarter, as consumers shunned Japanese products over the disputed islets known as Senkaku in Japanese and Diaoyu in Chinese. Last year’s sales decline was the first annual drop since at least 2007, according to data compiled by Bloomberg.

Nissan is more affected than other Japanese automakers by a slump in China because it sells about one in four of its vehicles in the world’s largest vehicle market and has the largest proportion of sales there among its peers.

North America

Nissan has resumed two-shift production in China, showroom traffic has recovered and now exceeds last year’s levels, Corporate Vice President Joji Tagawa said in a briefing in Yokohama today.

The automaker has warned the dispute between Asia’s largest two economies could force the company to review its future investment plans in China.

Nissan’s global sales in 2012 rose 5.8 percent to 4.94 million vehicles, led by an increase in demand in the U.S., Japan and emerging markets including Indonesia and Brazil.

Operating profit in North America reached 26.5 billion yen in the third quarter, compared with the 62.5 billion average of four analyst estimates compiled by Bloomberg.

Too Bullish

In the U.S., where Nissan introduced revamped models including Altima sedans, Pathfinder sport utility vehicles and Sentra compact sedans, sales of the new products fell short of the expected profits because of initial supply delays and high incentives, Goldman’s Yuzawa said.

“We were very bullish in setting the sales target in the beginning, but in reality the sales were below our expectations,” said Nissan’s Tagawa. “Now the production confusions in the U.S. have been solved. Contribution from the new models will be shown in the fourth quarter.”

The average incentive for every vehicle sold in the U.S., the carmaker’s biggest profit generator, rose 6.6 percent to $2,746 last year, compared with $1,804 at Toyota and $2,206 at Honda, according to researcher Autodata Corp.

In the mid-sized car segment, Nissan delivered 302,934 units of the Altima, the company’s best-selling model in the U.S., compared with 331,872 units for Honda’s Accord and 404,886 units for Toyota’s Camry, Autodata said.

Customer Loyalty

“The competitiveness of rivals, such as the high loyalty of Camry users and the Accord, which was fundamentally bolstered to rave reviews, is superior,” Takaki Nakanishi, an auto analyst at Bank of America Merrill Lynch in Tokyo, wrote in a report in January. “We have to say that expectations, including ours and Nissan’s, were too high.”

The Altima in 2011 overtook the Accord as the second-best selling car in the U.S. behind Camry. Nissan sales in the U.S. rose 9.5 percent to a record 1.14 million last year.

Nissan beat estimates for Europe, where it posted operating profit of 92 million yen in the third quarter, compared with the 1.18 billion-yen loss average of four analyst estimates compiled by Bloomberg.

Profitable Europe

In Europe, Ghosn said in December he expected the market to decline about three percent in 2013 as the region grapples with excess capacity. Nissan’s deliveries in Europe fell 2.4 percent to 678,697 vehicles in Europe last year.

In Japan, operating profit reached 17.2 billion yen in the third quarter, compared with the 24.3 billion yen average of four analyst estimates compiled by Bloomberg.

Nissan’s Japan vehicle deliveries rose 12 percent to 659,756 units last year, helped by the government’s subsidies for buyers of fuel-efficient cars.

“Japan is very difficult to forecast because we are looking forward to what kind of initiative they are going to take in order to sustain consumption,” Ghosn told reporters in December. “Without any intervention from the government, Japan will very likely to contract next year.”

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