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Toyota Surges on Strong Earnings Report

Toyota (NYSE: TM  ) said on Wednesday that its operating profit for the January-March quarter surged to 313.9 billion yen, or $3.17 billion, as solid sales and the devaluation of the Japanese yen drove a strong gain.

Toyota's profit came in well ahead of Wall Street estimates, which called for a gain of 263.8 billion yen, and was more than double the company's year-ago result.

It's an impressive showing for the Japanese auto giant, which is poised to make hay from its government's recent currency moves – and which saw its profits trail rival Volkswagen's (NASDAQOTH: VLKAY  ) last year, even though Toyota sold more cars.

Strong full-year numbers driven by success at home
Toyota's fiscal year ends on March 31, so the company also reported its full-year operating profits on Wednesday. Those were also strong: 1.32 trillion-with-a-t yen, or about $13.3 billion. While that lags VW's 2012 operating profit of $15 billion, it's well above the 2012 pre-tax profit of $7.9 billion that was posted by Toyota's other huge global rival, General Motors (NYSE: GM  ) , earlier this year. Toyota's net profit for the full year ended March 31 was 962.16 billion yen, or $9.7 billion.

CEO Akio Toyoda attributed the full-year gains to increased sales in North America and Asia and to a global push to control costs and increase margins. Toyota's U.S. sales were up 8.7% in the January-March quarter – though its sales here actually fell in April for the first time in almost two years. Toyota's Camry – long the best-selling car in the U.S. – was outsold by Honda's (NYSE: HMC  ) Accord over the last two months, and pressure from Ford's (NYSE: F  ) strong new Fusion sedan has cut into Toyota sales as well.

CEO Toyoda cited Asia as a key contributor to Toyota's full-year result, but it was really Toyota's home market of Japan that pushed the company's results in the most recent quarter. Toyota has a commanding lead in its home market, where it sold almost as many vehicles last year as it did in all of North America. Earnings from sales in Japan in the most recent quarter were 309.8 billion yen, 57% higher than the average analyst estimate, according to Bloomberg.

A mixed bag in Asia; profits up in Europe
Asia – which Toyota reports separately from its Japan results – remains a mixed bag for Toyota. On the one hand, Toyota's strong presence in the many emerging growth markets throughout Southeast Asia consistently drives good profits, and should be a catalyst for significant growth in coming years.

On the other hand, Toyota has struggled mightily in Asia's (and the world's) largest market, China. Sales have been down significantly in recent months as strong anti-Japanese sentiment among Chinese consumers has hit many Japanese firms' Chinese efforts hard.

Europe has hit many automakers hard, but Toyota's presence in the region is relatively small, and it has largely escaped the need to restructure that has hit larger regional rivals. The company was actually able to post an 8.6 billion yen increase in operating income in the region, to 26.4 billion yen for the full year.

A strong outlook for the coming year
For the full year that will end next March 31, Toyota said that it expects a net profit of 1.32 trillion yen, or $14 billion, a 42% increase over the net result from this past year. And believe it or not, that's conservative: Toyota's forecast assumes 90 yen to the dollar and 120 yen to the euro, though it's currently closer to 100 and 130, respectively.

What does that mean for the stock? Toyota shareholders have enjoyed a great ride lately, as improving sales and Japan's exchange-rate moves have driven a big surge for the automaker's stock. That surge could continue for a while longer: If exchange rates continue to be favorable for Toyota, and sales continue to be strong in the U.S. and Southeast Asia, the coming year could be a very good one for Japan's auto giant.

Toyota's stock has gained a lot lately, but is it still a buy at current prices? The Motley Fool's automotive expert John Rosevear and industrials analyst Isaac Pino have collaborated to create some of the most in-depth Toyota research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2013, at 1:19 PM, seattle1115 wrote:

    Toyota also owns roughly 16% of Fuji Heavy Industries (i.e., Subaru), which is seeing excellent earnings growth and which has gained 160% in the price of its shares in the past 12 months.

  • Report this Comment On May 08, 2013, at 8:08 PM, TMFMarlowe wrote:

    @seattle1115: Indeed. Fuji Heavy's 12-month chart is most impressive.

    Thanks for reading.

    John Rosevear

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