Nissan Hums Along

After what I'll politely call an eventful second half to 2006, I imagine Motley Fool Global Gains selection Nissan (Nasdaq: NSANY) is pleased with a quieter first quarter in 2007. You might even call it dull.

There were, however, a few interesting tidbits worth looking at this quarter. Unit sales motored higher everywhere except Japan. Nissan continued to roll out new models, fixing one of last year's weak spots. And one model in particular is doing much better than expected.

Unit sales rose 5.9% for Nissan globally, but the results varied widely by region. Europe was by far the strongest, with unit sales increasing 26.7%, followed by the U.S. with a 6.3% increase. Japan brought up the rear with a 6.3% decrease in units sold, while the rest of the world saw unit sales increase 6.2%. Fellow international standouts included China and the Middle East, which both saw double-digit gains.

The dreary results in Japan are directly linked to the company's lack of small-car offerings, known as "kei cars" in Japan. Nissan is working to beef up its offering of smaller cars in Japan, but like Toyota (NYSE: TM), the company has traditionally let other players focus on kei cars, best known for their distinctive yellow license plates and sub-660 cc engines. They're not powerful cars, but they're economical, taxed less heavily, and handy in a country chock-full of narrow roads.

Worldwide, Nissan rolled out 10 new models in the first quarter. Many, such as the new Altima coupe in the U.S., are interesting, but a compact SUV stood out from the pack. Sales are well above expectations for the SUV known as the Qashqai in Europe, Dualis in Japan, and soon to be launched as the Rogue in North America. The car is competing very well against entrenched models from Toyota, Honda (NYSE: HMC), and Ford (NYSE: F). Its success speaks to Nissan's ability to still develop models that snag sales with a combination of design and marketing.

Nissan's results didn't disappoint, but the increase in sales units didn't lead to higher profits. Revenue rose more than 10% on the increase in unit sales, but since Nissan's trends favor smaller cars with lower margins, operating earnings fell 3.2%. Net profit fell a bit further, because of higher taxes this year than last. However, I'd focus most intently on the operating profits, and how cost of goods sold and selling, general, and admin expenses are affecting operating profit. The company expects its operating profit trend to improve in the second half of the year, as additional new models with higher margins roll out.

While the quarter was boring, many of the underlying data points were not. The company's success with the Qashqai, and its overall ability to increase unit sales, shows that Nissan still gets attention from consumers. The number of units sold into China is also worth noting, because it's now reached two-thirds of what Nissan sold domestically in Japan. The Infiniti brand's march into new markets also bodes well.

If any item could hold the company back, it's U.S. small truck sales. All points considered, though, things are starting to look up for Nissan. The company has remained profitable, and it continues to generate plenty of cash flow.

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Nathan Parmelee has no ownership stake in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.