Toyota Seen With Triple GM’s Profit as Abe Boosts Exports

While Toyota Motor Corp. lost out to General Motors Co. in the number of vehicles sold last quarter for the first time since 2011, it won’t come in second by profit: Toyota probably earned $3 for every dollar at GM.

The Japanese carmaker may report tomorrow that profit climbed 52 percent to 441.2 billion yen ($4.5 billion) in the quarter ended June, according to the average of four analyst estimates compiled by Bloomberg. By comparison, Detroit-based GM reported last week that net income fell 23 percent to $1.4 billion as European operations continued to post losses.

While Toyota has been losing U.S. market share to Detroit’s resurgent automakers, the profit surge shows how Prime Minister Shinzo Abe’s efforts to weaken the yen are benefiting Japanese exporters by bolstering the value of products sold overseas. After four years of battling a recall crisis, strong yen and natural disasters, the maker of the Camry sedan and Prius hybrid is forecasting its highest annual profit in six years.

“Toyota is doing the right things in not trying to increase market share, but trying to raise profit margins,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo. “If volumes were sharply down, like 20 to 30 percent, I would worry.”

Toyota shares have outperformed all major automakers by surging 55 percent in 2013, adding more than $77 billion in market value, after the yen began declining against other currencies since late last year. The stock is trading at about 10 times projected profits for next year, the highest multiple among the world’s five biggest carmakers. Investors have also become more optimistic on a price-to-sales basis since 2011.

Closing In

Toyota rose 4.2 percent, the most since June 10, to 6,220 yen in Tokyo trading today.

Compared with Toyota’s stock-price peak in 2007, investors aren’t as enthusiastic about owning the stock, placing less value on each dollar of revenue as Detroit automakers and Hyundai Motor Co. improve their cars and close in on Toyota’s quality.

The stock gain since 2011 has coincided with improving profit margins. Toyota’s net profit margin rose to 4.4 percent in the fiscal year that ended March 31 from 1.5 percent a year earlier. It may increase to 6.7 percent in the current fiscal year, according to analyst estimates compiled by Bloomberg. GM, Ford Motor Co. and Volkswagen AG profit margins may slide this year before rising again in 2014, according to analysts’ estimates.

Toyota and its subsidiaries sold 2.48 million vehicles globally last quarter, shy of GM’s 2.49 million, as Japan’s largest manufacturer saw demand fall at home and competition intensify in the U.S.

Detroit Revival

In North America, the company is facing revitalized U.S. automakers that are rolling out the best cars they’ve built in a generation. Operating profit from the region last quarter probably reached 117.8 billion yen, little changed from a year earlier, according to the median in a Bloomberg News survey of four analysts.

Toyota’s deliveries in the U.S., its biggest overseas market, rose by 3.7 percent -- less than half the pace of the industry -- and its market share in the country fell to the lowest in five quarters, according to data compiled by Bloomberg. By comparison, GM’s market share climbed to the highest in four quarters, while Ford saw its share increase to the highest in six quarters.

GM is transforming its lineup into one of the market’s newest from one of the oldest as it prepares to bring 18 new or refreshed vehicles into showrooms this year, including the redesigned Impala, the first car from a U.S. company to be rated best sedan by Consumer Reports in at least 20 years. While net income fell last quarter, profit excluding one-time items beat analyst estimates.

Favorable Rates

Some Japanese automakers are taking advantage of favorable exchange rates. Nissan Motor Co., Japan’s second-largest carmaker, saw U.S. deliveries surge 20 percent last quarter after cutting prices of seven models in the U.S., including its top-seller, the Altima sedan.

The yen has weakened 12 percent against the dollar this year and last week traded at 100 versus the greenback. The Japanese currency may weaken further to 105 in the fourth quarter, according to the median of estimates compiled by Bloomberg.

That’s helped bolster Toyota’s earnings in Japan, the company’s main export base. Earnings from home in the quarter ended June probably surged 86 percent to 199 billion yen, according to the Bloomberg survey.

Japan Demand

In terms of demand, Japan’s a different story. Deliveries in the country fell 8.4 percent, extending their decline after government incentives for fuel-efficient models expired last year. Japanese vehicle sales have fallen steadily since the asset bubble burst in 1989, with temporary boosts from government subsidies.

In Asian markets outside of Japan, Toyota’s operating income probably fell for a second consecutive quarter as Japanese carmakers continue to underperform the industry in China, the world’s largest auto market. Profit from Asia, excluding Japan, dropped 0.8 percent 100.8 billion yen last quarter, according to the median analyst estimate.

In China, where a territorial dispute led to a consumer backlash that cut demand for Japanese products last year, Toyota continued to lose market share to GM and VW. Toyota’s deliveries climbed 0.6 percent last quarter, versus GM’s 12 percent and VW’s 16 percent, according to figures reported by the companies.

Demand for Japanese products in China, the world’s largest auto market, is recovering from last year and Toyota is targeting this year’s deliveries to rise to at least 900,000 units.

In Europe, where auto demand is slumping to its lowest level in two decades, Toyota probably generated profit of 5.7 billion yen, or 1 cent in profit for every dollar in sales, according to the median analyst estimate. Sales of Toyota and Lexus cars in the region were also little changed, keeping Toyota’s market share at about 4.5 percent.

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