Time To Consider This Car Maker Giant

| About: Toyota Motor (TM)

Some mega giants are much too difficult to beat and Toyota Motor (NYSE:TM) is among them. The financial crisis impacted negatively on many car makers, but Toyota remained strong. The company reported strong results in the first quarter due to the blessing of cheap yen. In the first half of 2013, its sales exceed its competitor's sales and it remains the world's largest automaker.

Consolidated results

First-quarter revenue saw an addition of 13.7% to 6255 billion yen ($62.9 billion). Operating income increased from 353.1 billion yen ($3.55 billion) to 663.3 billion yen ($6.67 billion) while net income was 562.1 billion yen ($5.6 billion), up from 290 billion yen ($2.92 billion) a year earlier. The increase in operating income is driven by the currency fluctuations and cost reduction efforts. The combined effect of these two factors improved the operating income by 330 billion yen ($3.3 billion). For the FY2014, the company forecast revenue of 24 trillion yen ($241 billion), operating income of 1.94 trillion yen ($19.5 billion) and net income of 1.48 trillion yen ($14.9 billion). For the first quarter, consolidated vehicle sales were 2,231,859, a decrease from 2,268,563 a year earlier.

Regional performance

In the first quarter of 2013, Toyota's operating income from all regions increased except in North America. In North America, Operating income decreased by 29.7%, to 82.6 billion yen ($831 million) due to the recording of valuation losses on interest rate swaps stated at fair value in sales finance subsidiaries. In Japan, Operating income increased by 348.9 billion yen to 456 billion yen, thanks to the favorable foreign exchange rates and profit expansion activities. The increase in Asia's net income by 2.6% is due to cost reduction efforts.

In Japan and Asia, sales units decreased by 50,893 and 23,890 units respectively while in Europe sales decreased by 16,336 units. The decrease in Asia is due to declining sales in China, and the slow economy in India. In Japan, the demand for Eco cars is increased, which impacted its sales while the decrease in Europe is as a result of the sluggish market. Unit sales in the North America market, the most competitive market for Toyota, increased 26,309 units to 688,656 due to solid sales of RAV 4 and Avalon.

First-half sales

Despite China slump, Toyota remains the world's top-selling automaker, outpacing its competitors. The company sold 4.91 million cars and trucks globally during the first half of 2013. The numbers were down 1.2% from the previous years but still outpace its U.S. rival General Motors. Although, the sales in China were affected due to anti-Japanese sentiment offset by the solid sales in the other region. Toyota also manufactures heavy trucks, which has given it an edge over its competitors. First-half sales included sales of 78,000 trucks from Toyota's Hino Motor. Excluding this number its global sales totaled about 4.83 million, below the General Motors global first-half sales of 4.85 million.

Toyota regained the crown of world's largest automaker last year after slipping to third position behind General Motors and Volkswagen. The reason for slipping was natural disasters in Japan and Thailand, which impacted its supply chain and a series of recalls, which affected its reputation. The company set a production goal of 10.1 million for 2013, and if it manages to meet this goal, it would be an industry record.

Looking forward

As a Japanese car maker, Toyota records its profit in yen while sales are recorded in dollar, euros and in other currencies depending upon the region. Fluctuations in exchange rates have a significant impact on the company's profit. According to Credit Suisse, the yen is expected to weaken further against the dollar in the next 12 months; meaning the company's profit will improve further. Toyota is now focused on increasing profits rather than on market share. These cost reduction efforts will help the company to expand profits in the future, meaning return to shareholders will increase in the future.

The company is gaining share in the U.S. market versus its rivals. The company faced a sales decline in Japan, and Asia, but improved its operating profit in both regions, thanks to cost cuts. The growth in Asia is expected to remain slow due to increased competition. To improve sales in Japan, the company is introducing new models that will be attractive to customers and will boost its revenue in coming quarters. Due to the number of recalls, Toyota's reputation was affected, but still it is a market leader because customers have a strong confidence in it. It is a top producer of gasoline-electric hybrid vehicles. The Toyota Prius is among the famous cars in the market. The company has also planned to introduce more hybrid cars and will also manufacture hybrid trucks that will help it to gain market share in the future.


In recent years, Toyota faced a tough time due to massive recalls and due to the earthquake and tsunami in northeastern Japan. Despite this, Toyota recovered quickly and posted strong results in the first quarter of 2013. Although, the company is facing decline in Asia due to a sales decline in China, the expected weakness of the yen and its strong cost-cutting efforts will help to boost profits in coming quarters. It is better for investors to add Toyota to their portfolio in order to generate a solid income in the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Equity Whisper is a team of analysts. This article was written by our industrials analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

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