Toyota's global sales fell during the most recent quarter. A shift to more profitable products like the RAV4 helped offset the impact of the decline -- but an exchange-rate swing helped much more. Image source: Toyota.

Toyota (NYSE:TM) said on November 5 that its net income for the quarter ended September 30 rose 13.5% to 611.7 billion yen ($5.12 billion) as an aggressive cost-cutting program, better sales of high-profit trucks and SUVs, and favorable exchange-rate swings offset a decline in overall global sales.

Toyota earnings: The raw numbers
Like many Japanese companies, Toyota's fiscal year begins on April 1. For Toyota, the three-month period that ended on September 30 was the second quarter of the 2016 fiscal year.

Financial results are shown in yen. 

  Q2 Fiscal 2016 Q2 Fiscal 2015 Change
Revenue 7,103.8B 6,554.9B +8.4%
Units Sold 2,164,000 2,235,000 -3.2%

Operating Income


659.2B +25.5%
Net Income 611.7B 539.0B +13.5
USD-JPY Average 122 yen 104 yen +18 yen

Toyota's overall operating profit margin was 11.6% during the quarter, up from 10.1% a year ago.

What happened with Toyota this quarter?
Like rival Honda (NYSE:HMC), which reported a 6.9% jump in net income, Toyota got a windfall from favorable exchange-rate shifts. But Toyota's windfall had a much greater impact on its bottom line.

Toyota's 168.1 billion yen year-over-year jump in operating income was more than explained by the weakening value of the yen versus the dollar. During the year-ago quarter, one U.S. dollar was worth 104 yen, on average, versus an average 122 yen this time around. In other words, every dollar Toyota earns in the U.S. and brings home to Japan is worth more to Toyota's bottom line now than it was a year ago.

That effect alone accounted for a 185 billion yen increase in Toyota's operating profit. The ongoing global cost-reduction efforts initiated by CEO Akio Toyoda added another 80 billion yen. But both of those effects were offset by lower sales volumes, a 20-billion-yen boost in research and development spending, and other expenses.

In other words, Toyota's huge profit jump was largely attributable to a windfall. Each of Toyota's five regional units sold fewer vehicles than it did in the year-ago quarter.

In Japan, Toyota's operating income jumped to 482.3 billion yen from 352.8 billion yen a year ago, despite a 2% decline in sales. Part of that increase was due to the exchange-rate effect on sales of cars built in Japan and exported to the U.S., and part of it was attributable to those cost-cutting efforts at Toyota's headquarters.

In North America, operating income of 134.6 billion yen was down 3.4% from 139.3 billion yen a year ago. Sales were also down slightly, but the improved "mix' of products (more SUVs and pickups relative to sedans) boosted revenue. But the operating margin fell to 5% from 6.2% a year ago, as the other side of that exchange-rate shift cut into the region's profits. 

In Europe, operating profit of 22.3 billion yen was about the same as a year ago, despite a 2.9% drop in sales, again on a more favorable "mix." In Asia (which excludes Japan and Toyota's joint ventures in China), operating income rose 40% despite a 12% decline in sales, again on cost cuts and favorable exchange-rate swings. And in Toyota's "rest of the world" unit, which includes Africa, Latin America, the Middle East, and Oceania, operating income dropped 34% to 28.8 billion yen on lower sales (down 2.2%) and unfavorable exchange-rate moves. 

Toyota's joint ventures in China earned 27.1 billion yen, up 29%, on a 19.7% increase in sales.

Looking ahead
Toyota cut its full-year sales forecast for the fiscal year that will end on March 31, 2016. It now expects global wholesales of 8.75 million vehicles and retail sales of 10.0 million. It had previously guided to 8.9 million wholesales for the year. Toyota's retail sales totaled 10.168 million last year, a record.

Still, despite the lowered expectations for wholesale volumes, Toyota's forecasts for operating profit and net income were unchanged. It still expects operating income of 2.8 trillion yen and net income of 2.25 trillion yen ($18.5 billion) for the full fiscal year.