Toyota Swings to Profit

Toyota Motors (TM - Snapshot Report) returned to profitability in the second quarter of fiscal 2010 ended Sept. 30, 2009, after reporting losses since the third quarter of fiscal 2009. The company posted a profit of ¥21.8 billion ($232 million) or ¥6.96 (7 cents) per share.

This can be attributed to government incentive programs across the world -- such as "Cash for Clunkers" -- that helped the company recoup its market share. However, this is still lower than the ¥139.8 billion ($1.49 billion) or ¥44.52 (47 cents) per share of profit recorded in the same quarter of 2008.

Consolidated revenue in the quarter dipped 24% to ¥4.54 trillion ($48 billion). Automotive revenue fell 24% to ¥4.11 trillion ($44 billion) while Financial Services revenue shrank 17% to ¥307 billion ($4 billion). This was on the back of a decline in vehicle sales in each region as well as negative impact from the appreciation of yen.

Sales volume declined 16% to 1.64 million units due to a decrease in volume in all the regions except North America. In North America, volume increased by 13,938 units to 250,704, driven by demand generated by the Cash for Clunkers program. Toyota Corolla topped the buy list in the program, followed by Toyota Camry in third place and Toyota Prius in seventh place.

Toyota reduced its interim cash dividend to ¥20 per share (21 cents per share) for the first half of the fiscal under study from ¥35 per share (37 cents per share) in order to take control of its serious financial position.

Financial Position

Toyota had cash and cash equivalents of ¥2.65 trillion ($28 billion) as of Sept. 30, 2009. Long-term debt amounted to ¥9.21 trillion ($98 billion) as of that date. The long-term debt to capitalization ratio stood at 48%.

In the first half of fiscal 2010, Toyota had a net cash flow of ¥1.57 trillion ($17 billion) from operating activities, an increase of ¥54 billion ($577 million) from the year-ago level. Meanwhile, capital expenditures reduced to ¥329 billion ($3.5 billion) in the above period from ¥702 billion ($7.5 billion) during the same period a year ago.

Looking Ahead

Toyota revised its consolidated vehicle sales for the fiscal ending Mar. 31, 2010 from 6.6 million to 7.03 million, an increase of 430,000 units. This figure reflects the increase in sales due to the success of various incentive programs launched by governments across the world to stimulate demand in the industry as well as sales of the company’s own hybrids and other environment-friendly vehicles.

Consequently, consolidated net revenues forecast were upgraded to ¥18 trillion ($191 billion). However, the company anticipates an operating loss of ¥350 billion ($3.72 billion) and net loss of ¥200 billion ($2.13 billion) for fiscal 2010. These lead us to recommend the shares of the company as Neutral.