Nissan Predicts Profit Slide on Higher Materials Costs, Yen

  • Sees deliveries in China rising, while U.S. sales may be flat
  • Enhancing brand value foundation for competitiveness: CEO

Nissan Motor Co. forecast a surprise drop in annual profit on expectations for higher raw material costs and a stronger yen, and as competition increases in the U.S. and China.

Operating profit will probably fall 7.7 percent to 685 billion yen ($6 billion) in the fiscal year through March, compared with the average analysts’ estimate for a gain to 775.4 billion yen, the Yokohama, Japan-based company said Thursday. While deliveries in China are projected to increase, vehicle sales in the U.S. are expected to be flat.

Hiroto Saikawa during a news conference on May 11.

Photographer: Kiyoshi Ota/Bloomberg

Hiroto Saikawa, who succeeded Carlos Ghosn as chief executive officer from April, takes over a Nissan that has boosted annual sales by about 33 percent since 2011 and improved its brand value by almost 50 places in rankings by marketing consultant Interbrand. Saikawa will be seeking to push the company further as Ghosn focuses on wringing synergies from its alliance with Renault SA and Mitsubishi Motors Corp.

“How to enhance brand value will be the foundation for the mid-term competitiveness of the company, to enable the company to sustain profitability and grow,” Saikawa said in his first earnings briefing as CEO. “We did make progress in this area, but we have not yet been able to maximize the brand value of Nissan.”

Other forecasts for the current financial year:

  • Raw material costs to have negative impact of 90 billion yen on operating profit
  • Foreign exchange impact seen at 60 billion yen
  • Vehicle sales will probably rise 3.6 percent to 5.83 million units
  • Nissan basing forecasts on exchange rate of 108 yen to the dollar

Mid-Term Goal

Nissan boosted its global market share to 6.1 percent from 5.8 percent during the six-year period ended March and maintained an aim to achieve an operating profit margin of 8 percent in the next mid-term plan. The automaker’s performance in China will be key to achieving its global market share goal, with Nissan seeking to strengthen its Venucia brand to stave off competition from local marques, Saikawa said in Yokohama on Thursday.

The company also said it aims to raise revenue to 16.5 trillion yen in the next six years, up from 11.7 trillion yen in the year ended in March.

Nissan’s operating profit fell 6.4 percent to 742.2 billion yen in the year ended March. Foreign exchange was the biggest drag on operating profit in the last fiscal year, followed by marketing and selling expenses, and other items. The automaker also sold its stake in parts maker unit Calsonic Kansei Corp. last year, removing its contribution to profit this year.

A major drag on profitability is the higher-than-average incentives in the U.S., its largest market. While the automaker increased its market share in the country to about 10 percent this year through April, its incentives last month jumped 21 percent to $3,902 per car -- the highest among Asian auto brands. It will start selling the Rogue Sport this month in the U.S., banking on the popularity of the crossover to help it outperform rivals amid a deepening industrywide slump.

U.S. Market

The U.S. market is “plateauing at a high level, and it seems like it’s not going to grow much,” Saikawa said. Nissan will aim to expand “as much as possible” in the U.S. without damaging profitability, he said. The automaker will increase the proportion of trucks to 60 percent of its total sales in the U.S. to boost profit margins, Jose Munoz, the company’s North America chief, said.

The automaker will also be looking to benefit from synergies with Renault and Mitsubishi Motors. Nissan in October completed its acquisition of a 34 percent stake in the smaller Japanese automaker after a fuel-economy cheating scandal plunged Mitsubishi Motors into the biggest annual loss in more than a decade. The two carmakers have agreed to jointly purchase and share plug-in hybrid and autonomous-driving technology.

On Thursday, Saikawa said Nissan will use Renault’s technology for compact cars and commercial vehicles to boost profitability.

“What are the remaining tasks or opportunities for the future? There are a lot of them,” Saikawa said. “One big remaining task is we are very good at cost enhancement but revenue opportunities are where we see mixed picture. So we need to grasp more opportunities on the revenue side.”

— With assistance by Kevin Buckland

(Updates with sales forecast in fifth paragraph. An earlier version of this story was corrected to fix percentage decline in operating profit in year ended March.)
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