Toyota Posts First Profit Drop in Three Years on U.S. (Update1)

By Naoko Fujimura and Tetsuya Komatsu
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May 8 (Bloomberg) -- Toyota Motor Corp., the world's second- largest automaker, posted its first drop in quarterly profit in almost three years because of a stronger yen and slumping U.S. auto sales. It also said profit will likely fall this fiscal year.

Net income fell 28 percent to 316.8 billion yen ($3 billion) in the three months ended March from 440 billion yen a year earlier, the company said in a statement today. That was lower than the 375.2 billion yen median of six analyst estimates compiled by Bloomberg. Sales rose to 6.57 trillion yen from 6.33 trillion yen.

U.S. drivers bought 5.6 percent fewer Corolla sedans and other Toyota models in the period as a faltering economy and tighter credit damped demand in the world's largest auto market. The yen's 12 percent appreciation in the quarter also cut the value of sales in North America, where Toyota earns about half its operating profit.

``The slowdown in the U.S. really hit Toyota,'' said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which oversees $28 billion in assets. ``The market has yet to hit bottom.''

Profit Drop

The carmaker expects annual net income to drop 27 percent to 1.25 trillion yen in the year started April 1, it said today. The stronger Japanese currency will probably trim 690 billion yen from operating profit, it added.

Toyota based its earnings forecast on exchange rates of 100 yen to the dollar and 155 yen to the euro. Every 1 yen gain against the dollar and euro trims Toyota's annual operating profit by 35 billion yen and 5 billion yen, respectively, according to the company.

Toyota's earnings slump follows rivals Honda Motor Co. and Mazda Motor Corp. as the overall U.S. market dropped 8.1 percent. The price of regular gasoline gained 8 percent to $3.29 a gallon in the period and cost $3.62 a gallon as of yesterday.

The Toyota City, Japan-based company's shares fell 18 percent in the three months on the Tokyo Stock Exchange, the largest quarterly drop in more than six years.

``I expect more bad news from the industry,'' said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $2 billion in assets. Still, ``Toyota should come through this period stronger and better'' because of its lead in gasoline-electric hybrid technology.

April Sales

In April, Toyota boosted U.S. retail sales for the first time in five months on demand for the Yaris and the Prius. U.S. drivers are picking fuel-efficient Toyota models over General Motors Corp. and Ford Motor Co. pick-ups because of record fuel prices.

Toyota plans to raise prices for models including the FJ Cruiser sport-utility vehicle, Yaris compact and Prius hybrid by as much as 2.1 percent in North America later this month to help offset rising materials costs.

Nippon Steel Corp. and JFE Holdings Inc., Japan's two biggest steelmakers, raised wholesale sheet steel prices 25 percent last month to cover an unexpected tripling in annual coking coal prices. They are seeking a further 10 percent increase as early as June, traders familiar with price talks said on April 22.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net.
Last Updated: May 8, 2008 02:20 EDT