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Toyota Q1 Earnings Surge on Weak Yen

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Toyota Motor Corp. (TM - Free Report) posted earnings per share of ¥177.32 ($1.79) in first-quarter fiscal 2014 (ending Jun 30, 2013), reflecting a strong 93.4% year over year rise. The company gained heavily from favorable currency translation and strong cost-controlling measures. Consolidated net income surged 87.8% year over year to ¥604 billion ($6.1 billion).  

Consolidated revenues in the quarter escalated 13.7% year over year to ¥6,255.3 billion ($63.2 billion) despite a 1.6% drop in unit sales to 2.2 million units. Unit sales dropped 8.8% in Japan, 7.8% in Europe and 5.7% in Asia. However, unit sales in North America and Other markets rose 4% and 7%, respectively.

Operating income was ¥663.3 billion ($6.1 billion), up 87.9% year over year.

The improvement in revenues and profits was attributable to positive impacts from currency fluctuations of ¥260 billion ($2.6 billion), cost reduction activities of ¥70 billion ($707 million), marketing activities of ¥30 billion ($303 million) and other activities of ¥10.2 billion ($103 million). These positives aided the company to offset headwinds associated with rise in expenses and others of ¥60 billion ($606 million).

Segment Results

Automotive segment revenues went up 13.6% to ¥5,818 billion ($58.8 billion) in the quarter while operating income surged 135.2% to ¥608.4 billion ($6.1 billion). The increase in operating income was mainly attributable to favorable currency fluctuation as well as positive impact of cost reduction measures.

Financial Services segment revenues scaled up 23.8% to ¥339.8 billion ($3.4 billion), while operating income plummeted 40.9% to ¥51.2 billion ($517 million). The decrease in operating income was primarily due to valuation losses on interest rate swaps.

All Other businesses revenues dropped 3.6% to ¥234.4 billion ($2.4 billion) and operating income declined 23.5% to ¥7.1 billion ($71.7 million).

Financial Position

Toyota had cash and cash equivalents of ¥1,526.2 billion ($18.25 billion) as of Jun 30, 2013, compared with ¥1,718.2 billion as on Mar 31, 2013 and ¥1,728.2 billion as on Jun 30, 2012. Operating net cash flow improved 46.5% year over year to ¥1029.3 billion ($10.4 billion). Long-term debt increased to ¥7,911.2 billion ($79.9 billion) as of Jun 30, 2013, from ¥7,337.8 billion as of Mar 31, 2013, reflecting a long-term debt-to-capitalization ratio of 58.3%, compared with 57.4% as of Mar 31, 2013.

Fiscal 2014 Guidance

Toyota raised its projections for fiscal 2014. Consolidated revenues are now estimated at ¥24,000 billion (($240 billion), an increase of 8.8% from fiscal 2013. Earlier, the company projected revenues of ¥23,500 billion. Operating income is expected to rise 46.9% year over year to ¥1,940 billion ($19.5 billion). Net earnings are expected to go up 53.8% to ¥1,480 billion ($14.8 billion), up from ¥1,370 billion expected earlier.

Our Take

Toyotaplays a pivotal role in shaping the global automobile industry.  Its increased focus on hybrid offerings and substantial recapturing of sales from top U.S. automakers like General Motors Company (GM - Free Report) and expanding business in emerging markets stand testimony to its growing presence on the global map.

However, Toyotafaces challenging market conditions in the Chinese and European markets. Furthermore, continued safety recalls are hampering its brand image. Subdued macroeconomic factors also remain detrimental factors for the business growth going forward. 

Other stocks from the automobile sector such as Nissan Motor Co. Ltd. (NSANY - Free Report) and Volkswagen AG ((VLKAY - Free Report) ), both with Zacks Rank #1 (Strong Buy), are worth considering for investment.

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