Fuji Heavy Industries (NASDAQOTH:FUJHY) will report its first-quarter numbers on July 31, and all eyes will be on the performance of its automotive division, which makes Subaru brand vehicles. The automotive division accounts for more than 93% of Fuji Heavy's total sales and nearly 95% of its total profits. Subaru has been on an excellent growth trajectory mainly due to skyrocketing sales in North America. In the financial year ended March 31, Subaru had sold 14% more cars globally and almost tripled its operating profits over the previous year. The Street is waiting eagerly to find out if the company can continue the same momentum in the first quarter. Here's the lowdown on what could be the key trends behind its growth.


The Subaru XV Crosstek, Source: Subaru

Expectations
For the current fiscal year 2015 that ends in March next year, Fuji Heavy has forecasted revenue of 2.7 trillion yen (roughly $26.5 billion at current exchange rates), up 12.9% from the 2.4 trillion yen that it reported in the previous fiscal year. Bloomberg analysts are in agreement with the company's guidance and expect a similar increase.

For the quarter, analysts are predicting sales of 609 billion yen (approximately $6 billion at current rates), up 11% from 547 billion yen reported in the year-ago period. Fuji Heavy is hoping to maintain 12.5% operating margin in its automotive division in the fiscal year, in line with management's expectation of keeping operating margin north of 10%. 

North America could remain the major revenue driver
North America contributed nearly three-fourths of Subaru's overseas sales in fiscal year 2014, with the U.S. alone contributing 54%. Similar trends could be seen in the current fiscal year as management hopes to sell 531,000, or 73%, of its cars in North America out of an overseas sales target of 721,000. Subaru wants to sell 490,200 cars in the U.S. alone in fiscal year 2015, 11% more than the 441,800 units it sold in the last year.

The company is on track to achieve its U.S. target -- in the April-June period, it sold 125,620 vehicles in the country, 26% of the forecasted sales. Through June, sales of Forester, Crosstek, and Impreza models have grown by 46%, 34.6%, and 13.4%, respectively, over the year-ago period. So, Subaru could see solid revenue increase in North America in the quarter.

For the rest of the year, the refreshed Outback, Impreza, Forester, and Crosstek models could drive Subaru's U.S. sales further as more and more U.S. buyers become fans of its turbocharged all-wheel-drive models.

The Japanese automaker has tapped Jeff Walters to replace retiring Bill Cyphers as head of U.S. sales effective from July 1. Walters is credited with involving the brand in motorsports, and he began its sponsorship of Rally Team USA in 2001.  He could help Subaru further enhance its brand image in the U.S. over the coming years.

Japanese sales could decline, but exports expected to peak
Subaru sold 182,000 -- or 22% -- of its vehicles in Japan in fiscal year 2014, but a recent hike in the sales tax rate from 5% to 8% weakens its sales outlook in the current fiscal year. This is the first time in the last 17 years that sales tax rates have gone up in Japan, and this is affecting sales of all consumer goods in the country, including cars. Japan Automobile Manufacturers' Association forecasts a record 16% decline in auto sales in the fiscal year ending March 2015.

Subaru's domestic sales fell 41% in April and 31.3% in May, compared to the same periods last year. The company is chasing a domestic sales target of 194,900 units in the current fiscal year, up 7.3% from fiscal year 2014. The company's hopes are tied to the 2014 Levrog model that it launched in May. The sports tourer comes with new safety features and newly developed 1.6-liter horizontally opposed direct injection turbo engine. 

Comparatively, exports from Japan have risen for the 16th consecutive month in May by 4.8%, led by rampant sales in North America.

Bottom line could remain firm
Subaru expects operating income for the current fiscal year to increase to 340 billion yen ($3.34 billion) and net income to 215 billion yen ($2.11 billion), from 326 billion yen and 207 billion yen, respectively, in the prior-year period. The estimate is moderate compared to the 171% increase it saw in fiscal year 2014, but the good part is that it would not be exchange-rate driven and come from sales growth and cost controls. Subaru aims to generate cost savings of 7 billion yen ($70 million) to aid earnings growth. Investors could see a reflection of these trends in the first-quarter results.

Rounding up
Subaru is witnessing strong demand for its cars in North America, which could be the key driving force behind its strong sales and profits in the first quarter. The company's other big market is its home turf of Japan, where sales numbers could remain weak due to the sales tax hike. Apart from that, investors could expect the company's cost-cutting initiatives to make an impact on the earnings numbers. It's likely to be a good quarter overall, so stay tuned.

ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.