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End of a profit era for Toyota, shares fall on lower outlook

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Ashlee Espinal | CNBC
Toyota logo

Shares of Toyota Motor fell more than 6 percent Wednesday as company announced lower full-year forecasts due to yen strength, and an end to its three-year profit streak.

The Japanese automaker outlined a 35 percent decline in net profit because of appreciation in the currency. It is expecting profit for the year to fall to 1.5 trillion yen, far short of average analysts' estimates of 2.25 trillion yen, according to Thomson Reuters. Toyota is predicting a negative impact of 935 billion yen on operating profit, it said in a statement.

"We have benefited from an exchange rate tailwind that has helped raise our earnings above the level of our true capabilities," Toyota's President Akio Toyoda said, in a statement. "Although this has enabled us to take on new challenges, that set of circumstances is likely to change for the worse this year."

Among the benefits of "exchange rate tailwind" were three-straight years of record profit for the company, increasing from 2.17 trillion to 2.31 trillion yen in the fourth quarter of 2016.

The automaker's stock is down about 20 percent year to date.

Source: FactSet

While the Japanese automaker benefited from a 120 yen-to-dollar average in 2015, this year, the company forecasted a dollar average of 105 yen. The Japanese currency has surged against the dollar in 2016, hitting an 18-month high in late April after the Bank of Japan surprised markets by holding back monetary stimulus.

The currency extended its gains into May, and is up more than 9 percent against the dollar this year. Each 1 yen move in the exchange rate affects Toyota's operating profit by 40 billion yen, Reuters reported.