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Toyota Motor Corp. Posts Strong Numbers, but Gives Cautious Outlook

Toyota (NYSE: TM  ) announced its fourth-quarter and end of fiscal year 2014 results on May 8, reporting a good set of numbers with its best ever net profit that increased by a whopping 89.5%. The company used the occasion to give a cautious outlook for the current fiscal year as the yen effect is vanishing and a sales tax hike in Japan threatens domestic sales. Let's unfold the quarter to get a better view of the company's plans and expectations going forward.

Toyota Camry, Source: Toyota.

Solid revenue growth on the back of higher deliveries
Net revenue shot up 16.4% to 25.69 trillion yen ($252 billion) from the last fiscal year, outpacing the company's forecast as it delivered 10.13 million vehicles. In the last quarter, revenue went up 12.6% to 6.57 trillion yen ($63.8 billion) after the company sold 2.33 million vehicles. Revenue growth was aided by the weakening yen, strong domestic sales, and recovery in the North American and European markets. People in the home market hurried during the year ended March to buy cars and save on increased sales tax, applicable from April.

The world's largest auto market, China, is recovering from recent anti-Japanese sentiment; consumers there bought 917,500 Toyota cars, up 9.2% from last year. However, the rest of Asia remains a concern for the automaker -- sales plunged 75,000 units to 1.6 million vehicles due to weak performance in Thailand and India. Thailand, one of Toyota's production hubs, is entangled in a political strife due to which the carmaker expects sales volume to be under stress this fiscal year.

As such, the automaker has given a modest revenue outlook and forecasts to sell around 10.25 million vehicles during the fiscal year. Gradual economic recovery in the U.S. and European market could lift sales and somewhat help make up for the weakness in Japan.

RAV4 2014, Source: Toyota.

Abenomics gives an earnings boost
Toyota's net income for the year was an investor's delight as it surged 89.5% to 1.82 trillion yen ($17.9 billion), or $5.66 a share. Net income margin rose to 7.1% from 4.4% a year ago. The rise is a result of improvement in operating efficiency, cost cutting measure, and effective marketing techniques. And it goes without saying that the weakening yen played a big role in pouring billions into the company's pocket. This also had a positive effect on the operating profit that jumped 73.5% to 2.29 trillion yen ($22.5 billion) from 1.32 trillion yen recorded a year ago.

However, net profit for the last quarter fell 5.4% to 297 billion yen ($2.91 billion) year on year, widely missing analyst forecast of 352.9 billion yen. The automaker attributed the $1.2 billion penalty paid to the U.S. Justice Department for lowering quarterly profits. In addition, Toyota's decision of closing plants in Australia increased closure costs and weighed on profits by 200 billion yen.

For the current fiscal year, management is acting cautiously. The company forecasts a 2% slip in net profit to 1.78 trillion yen ($17.5 billion), and a relatively flat operating income of 2.3 trillion yen ($22.65 billion) for 2015. There's a reason why the automaker expects lower profits. The Japanese government has recently been convincing companies, including Toyota, to increase the basic wage of workers that would aid in economic growth. Also, as the yen is gradually leveling off against the dollar and euro, profits could compress a bit. While these would be a drag on the result, cost reduction measures adopted by the management for revenue optimization will help in reaching the mentioned forecast.

Cash position remains strong
Toyota reported a cash balance of 2.04 trillion yen ($20.4 billion), up 18.8% from last year. The cash-rich automaker generated 3.6 trillion yen (around $36 billion) from its operating activities -- 48.7% higher than the previous fiscal year.

While Toyota is generating significant cash from operations, investors are getting a sweet taste of the company's success as well. The automaker, sitting on a huge pile of cash, is distributing 522.9 billion yen as dividend payment to its shareholders, which translates to a payout ratio of 28.7%. There's more to come. The Japanese auto major has decided to reward shareholders with a shares buyback program worth $3.5 billion in the next 10 months -- its biggest buyback in at least a decade, which no doubt would boost investor confidence.

Looking ahead
Toyota tends to play safe by not being lured to forecast huge revenue or income targets which could possibly be unachievable in the near future. President Akio Toyoda told Wall Street that the company aims for "sustainable growth " to grow "steadily each year under any circumstances." The automaker is in no hurry to record higher numbers; rather, it's looking for continuous betterment. Toyota has had a great fiscal year, and looks set to have a modest year ahead.

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ICRA Online provides data, research, and analytics solutions. Our research team of accountants, management graduates, and media specialists, does in-depth company analyses, going beyond news, and diving deep into numbers. We write on industrial sectors like automotive, aerospace, and machinery, making it our business to take a 360 degree view of every company we cover.

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