The quick takeaway
For the quarter ended June 30, FHI's net income grew a whopping 61.1% to 84.2 billion yen ($677.9 million). Revenue rose 29% to 765.3 billion yen ($6.18 billion) on a 16.2% rise in Subaru unit sales.
FHI's operating profit rose 70.5% to 134.2 billion yen ($1.08 billion), beating the 129 billion average estimate among analysts surveyed by Thomson Reuters.
Shares rose about 1% in trading in Tokyo on Friday.
A small automaker with a big presence (and hot sales) in the U.S.
Fuji Heavy Industries isn't a household name in America. The company traces its roots to a defense contractor that built airplanes for the Japanese military during World War II. FHI still has a small operation building military helicopters and aircraft parts, but these days nearly all of its revenue and income comes from its automaking division -- Subaru.
By global automaking standards, Subaru is tiny: It isn't even among the top 15 global automakers. It sold less than 1 million vehicles in the fiscal year that ended on March 31. But it's an outsized player in the U.S., which contributed 62.4% of Subaru's total global sales in the most recent quarter.
That's a good thing for Subaru, because its U.S. sales have been on fire. Sales surged 25% during the quarter, powered by massive gains for its Legacy sedan (new last year) as well as market-beating year-over-year sales increases for its Outback, Forester, and XV Crosstrek crossover SUVs.
Exchange-rate shifts helped supercharge profit gains
Fuji Heavy's operating profit margin of 17.5% for the quarter blows away margins at all mainstream rivals -- only powerhouse luxury brands Porsche and Ferrari can compare.
Certainly strong products -- and CEO Yasuyuki Yoshinaga's conservative approach to spending -- have had a lot to do with Subaru's profitability. Subaru's sales gains contributed 17.6 billion yen of FHI's 55.5 billion yen jump in operating profit.
But the biggest driver of that profit jump was the shift in exchange rates. FHI reported its quarterly results at an exchange rate of 120 yen for every U.S. dollar it earned, up from 102 yen a year ago. That alone added 50 billion yen to FHI's operating profit for the quarter.
Those gains were partially offset by a 15.1 billion yen increase in costs, including those attributable to Subaru's recalls of defective airbag inflators made by Takata, and a 2.4 billion yen increase in research and development expenses.
The upshot: Another nice quarter for Subaru's parent company
FHI left its guidance for the fiscal year that will end next March 31 unchanged. The company still expects a full-year operating profit of 503 billion yen ($4.06 billion). That would be a 19% year-over-year increase.
Fuji Heavy's stock has surged over the last few years thanks to Subaru's market-beating sales gains -- and in recent times, thanks to the strength of the U.S. dollar versus the yen. There may not be a lot more room for it to run.
But as long as Subaru's winning formula continues to resonate with U.S. car buyers -- and as long as Yoshinaga's careful approach to costs remains intact -- Fuji Heavy should continue to report good profits.
John Rosevear and The Motley Fool have 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.