Toyota Motor (NYSE:TM) reported operating profit of 654.4 billion yen ($5.95 billion) for the quarter that ended on Dec. 31, ahead of analysts' expectations, and it raised its profit guidance for the fiscal year that will end on March 31. 

Toyota's operating profit fell 3.6% from a year ago, but it was solidly above the Wall Street consensus estimate of 643.8 billion yen as reported by Bloomberg. Revenue of 7.54 trillion yen also topped the analysts' 7.42 trillion-yen estimate. 

The raw numbers

Like many Japanese companies, Toyota's fiscal year begins on April 1. The quarter that ended on Dec. 31 was the third quarter of its 2020 fiscal year.

Metric Fiscal Q3 2020 Change YOY
Revenue 7.544 trillion yen (3.3%)
Vehicle sales 2,685,000 (0.8%)
Operating income 654.4 billion yen (3.6%)
Operating margin  8.7% unchanged
Net income 738.0 billion yen 407.9%

Data source: Toyota Motor. YOY = year over year. PP = percentage points. Vehicle sales include the vehicles sold by Toyota's joint ventures with Chinese automakers and are rounded to the nearest thousand. 

Average exchange rates, Oct. 1 through Dec. 31, 2019, were:

  • 109 yen per U.S. dollar, versus 113 yen per dollar in the year-ago period.
  • 120 yen per euro, versus 129 yen per euro in the year-ago period.
A 2020 Toyota RAV4 TRD, an off-road-ready compact crossover SUV.

The compact RAV4 crossover was once again Toyota's best-seller in the U.S. in 2019. Image source: Toyota.

What happened in the quarter that ended on Dec. 31

In a nutshell: Toyota's operating income fell year over year because of unfavorable exchange-rate movements and (to a lesser extent) higher incentives in some markets, which the company was able to offset with cost reductions and currency hedging. 

  • In Japan, Toyota's operating income fell 17.8% from a year ago, to 404.7 billion yen, on an 8.7% drop in vehicle sales to about 516,000. Toyota's margin in its home country was 10%, down from 11.6% in the year-ago period.
  • In North America, Toyota's operating income surged to 105.9 billion euros from just 26.4 billion euros in the year-ago period. Sales fell 1.8%, to about 668,000 vehicles. Its operating margin in the region was a thin 3.9%.
  • In Europe, Toyota's operating income rose 56% to 39.1 billion yen, with a margin of 4.6%. Sales rose 6% to about 246,000 vehicles. 
  • In China, operating income from Toyota's subsidiaries fell 7.5% to 38.2 billion yen, while equity income from the company's joint ventures with Chinese automakers rose 22.9% to 32.7 billion yen. Sales rose 1.7% to about 411,000 vehicles, bucking the overall market's downward trend. 
  • In the rest of Asia (excluding Japan), Toyota's operating income fell 17% to 98.3 billion yen, as sales declined 12.5% to about 406,000 vehicles. Operating margin in the region was 7.3%, down from 7.9% in the year-ago period.
  • In Toyota's "rest of the world" region, including Latin America, Oceania, Africa, and the Middle East, operating income rose 27% to 25.9 billion yen. Sales rose 5.6% to about 360,000 vehicles. 
  • Toyota's financial-services unit generated 92.2 billion yen in operating income, up 2.8% from the year-ago period on incremental lending growth. 

Looking ahead: Increased full-year profit guidance

Toyota maintained its previous full-year guidance for sales and revenue, but it bumped up its expectations for operating income and net profit. Here's what management said that auto investors should expect in the fiscal year that will end on March 31, 2020:

  • Sales (excluding China joint ventures) of about 8.95 million vehicles, unchanged from its previous forecast. (Fiscal 2019 result: 8.977 million vehicles.)
  • Revenue of about 29.5 trillion yen, unchanged from prior guidance. (Fiscal 2019: 30.225 trillion yen.) 
  • Operating income of about 2.5 trillion yen, 100 billion yen higher than in the prior forecast. (Fiscal 2019: 2.467 trillion yen.) 
  • Operating margin of 8.5%, up from 8.1% in the prior forecast. (Fiscal 2019: 8.2%.)
  • Net income of 2.35 trillion yen, up from 2.15 trillion yen in the prior forecast. (Fiscal 2019: 1.88 trillion yen.) 

Toyota also now expects average exchange rates for the fiscal year of 108 yen to $1 and 121 yen to 1 euro, versus 107 yen to $1 and 118 yen to 1 euro in its prior forecast.