Top Japanese automakers are due to report higher third-quarter earnings led by strong overseas sales, but the next few quarters could see profits fall as the dollar weakens against the yen.
Shares in Toyota Motor , Honda Motor , Nissan Motor and other carmakers have suffered this year as investors price in the risk of a U.S. recession and a further climb in the yen against the U.S. dollar.
Such worries are likely to persist for some time, analysts said, but for the latest quarter most Japanese carmakers likely offset any negative impact of the dollar's fall with brisk sales growth.
In the next few quarters, a stronger yen will likely drag down the bottom line, but booming business in emerging markets such as China and Russia, as well as Japanese cars' reputation for fuel efficiency amid record-high gasoline prices will keep fundamentals solid for most, they said.
"The outlook for the U.S. economy has become unclear, and the market is deeply concerned about macro risks," JPMorgan Securities auto analyst Takaki Nakanishi wrote in a recent report.
"(But) Japanese automakers will successfully decouple their earnings structures from the U.S. and maintain sound medium-term earnings growth on the back of motorization in emerging nations," he added, referring to the coming few years.
That trend has already become visible for Toyota, whose operating profit is estimated to have grown 7.6 percent in October-December from the year-earlier quarter, according to a poll of eight brokerages by Reuters Estimates, despite a fall in North American sales.
The decline in the region, which has for years accounted for more than half of Toyota's operating profit, was offset by higher sales volumes in Asia, Europe and other smaller markets. Exports of its high-end Lexus cars to markets such as China and the Middle East, where pricing for luxury models still heavily favors sellers, have also been a boon for Toyota.
The yen's sharp appreciation will shave profits in the coming quarters, but vehicle sales will continue to grow as more capacity from Canada to China becomes available to Toyota.
In October-December, the dollar averaged around 113 yen, down 5 yen from the same period a year earlier. On the other hand, the yen favorably weakened against other major currencies including the euro, which spiked to an average 164 yen from 152 yen.
Mazda, Suzuki, Ride Weak Yen
That helped Mazda Motor and Suzuki Motor, which have a relatively small exposure to the United States, post currency gains in the latest quarter.
The dollar has since lost about 6 percent to the mid-106 yen level,
while the euro has shed 4 percent to around 156.8 yen.
Mazda has been rescued by a strong euro as European consumers snapped up the new Mazda2 subcompact and CX-7 and CX-9 crossover vehicles -- a cross between cars and sport utility vehicles. U.S. sales also grew, but came at the expense of higher spending on discounts and other incentives, analysts said.
Mazda's global sales are expected to continue growing as production ramps up in China for the Mazda2, and the remodeled Mazda6 series becomes available in more markets around the world.
Mazda's operating profit is estimated to have risen 3 percent in the third quarter.
Suzuki is expected to post the biggest profit gain for the quarter, at 16 percent after adding production capacity overseas to meet healthy demand for its compact cars in Europe and Asia.
Crossovers Fuel Growth
Nissan's headline figures may be stronger, but only because it will get a lift from the change in accounting period for its European and Asian subsidiaries. Consensus estimates have its operating profit surging 17 percent for the quarter, but that would translate to a fall when adjusted for the accounting change.
Still, Nissan's global sales volume for the quarter grew, driven by the Rogue crossover in North America, the Qashqai/Dualis in Europe and Japan, among others.
Honda also rode the growing popularity of crossover vehicles around the world. Last year, its CR-V model became the most popular SUV in the United States and is winning over more drivers in Europe.
Honda's third-quarter operating profit is seen falling 1.5 percent from an especially strong quarter a year earlier, while net profit, which includes earnings from its Chinese operations, is estimated to rise 1.5 percent.
Mitsubishi UFJ Securities analyst Shotaro Noguchi, who expects a 2 percent rise in operating profit, predicted brighter days ahead for Honda. "We remain bullish as we look for growth accompanying capacity expansion in Japan and the United States to kick in from the second half of 2008/09," he said.
Honda kicks off the earnings season for the top makers on Wednesday, followed by Suzuki on Thursday, Nissan on Friday, Toyota on Feb. 5 and Mazda on Feb. 6.