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Toyota earnings: what to look out for

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Toyota may be set to post another record profit, but what investors will really want to know is whether Japan's biggest car company will hike payouts to shareholders.

Record earnings

Stronger sales of larger models in North America, a weaker yen and cost cuts are set to push Toyota to a record profit for the second year in a row. For the fiscal year, the company has given an operating profit guidance of 2.7 trillion yen ($22.6 billion), up 14 percent on-year.

Upside surprise?

A surprise to the upside may on the cards, but only a modest one.

The operating profit may come in 40 billion yen higher than the company's guidance, thanks to foreign-exchange gains, particularly as the yen has depreciated against the U.S. dollar, according to Nomura analyst Masataka Kunugimoto's April 1 preview note. The yen weakened by around 16 percent against the greenback during the last fiscal year, between April 2014 and March 2015.

Guidance

No lofty aspirations should be expected here, only solid and achievable targets.

The consensus median forecast is for a 9 percent rise in operating profit in fiscal 2016 to 3.18 trillion yen, according to a Reuters' poll. Revenue is expected to rise by five percent on-year to 28.5 trillion.

Not only would that mark another record profit for Toyota, but it will also be the largest profit ever for a Japanese company, Advanced Research Japan auto analyst Koji Endo told CNBC by email.

In Japan, the auto sector has the highest rate of meeting earnings guidance, according to BNP Paribas auto analyst Clive Wiggans, although the success rate can be attributed "as much to forecast conservatism as to execution ability," he said in an April 8 preview note.

Still, the earnings guidance is likely based on conservative currency assumptions and earnings will beat guidance as long the yen stays above Toyota's projection of around 115 yen to the U.S. dollar, Nomura's Kunugimoto said in his note. The yen was quoted at 119.72 yen against the dollar in early Asian trade on Friday.

Shareholder returns

But shareholders will really be watching how much of a reward Toyota may have in store.

In fiscal 2015, Toyota paid out nearly one trillion yen via dividends and share buybacks, and hopes are high that will rise in fiscal 2016.

Toyota's automobile business alone generates annual free cash flow of one trillion yen or more, and "Toyota's scope for shareholder returns is expanding," said JP Morgan auto analyst Akira Kishimoto in an April 6 preview note.

Toyota will announce its annual results after Tokyo markets close on Friday.