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Toyota's Profit Rises on Emerging Market Growth

Toyota Motor reported a 7.5 percent rise in quarterly profit on Tuesday thanks to speedy growth in China, Russia and other emerging markets.

A Tacoma pickup truck on the lot of a Toyota dealership.
David Zalubowski
A Tacoma pickup truck on the lot of a Toyota dealership.

Toyota, valued at $196 billion -- about 12 times the market capitalization of General Motors -- has seen its momentum slow in the key U.S. market, but has made up for that with rapid expansion in China, Russia, the Middle East and other oil-rich regions.

That has helped Toyota and domestic rivals Honda Motor and Nissan Motor shield themselves from a downturn in the United States -- the source of much of their profits -- which has been dogged by falling housing prices and credit woes.

October-December net profit at Toyota, the world's most profitable automaker, was 458.7 billion yen, ahead of an average estimate of 455.4 billion yen from six brokerages surveyed by Reuters Estimates.

Third-quarter operating profit, which excludes earnings made by its Chinese joint ventures, grew 4.7 percent to 601.6 billion yen. Revenue grew 9.2 percent to 6.7 trillion yen.

For the full year ending on March 31, Toyota kept its forecasts unchanged for a net profit of 1.7 trillion yen and operating profit of 2.3 trillion yen -- record results for the seventh straight year.

"The company is taking a cautious view due to two main reasons: the possibility of the U.S. economy falling into a recession, which will hurt consumption, and the stronger yen," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Consensus forecasts from 22 brokerages call for a net profit of 1.82 trillion yen and operating profit of 2.46 trillion yen.

The auto maker announced share buybacks worth up to 120 billion yen and plans to cancel 4.49 percent of outstanding stock.

Analysts expect Toyota's steady profit growth to continue despite pressure from a weaker dollar and risks of a U.S. economic slowdown, powered by fuel-efficient Prius cars and high-margin Lexus models.

Toyota opened a new factory in Russia late last year, and is also adding capacity in Thailand, Brazil, China and Canada.

Global sales for the third quarter rose 5.3 percent to 2.3 million vehicles thanks to a growth in all markets except North America. Sales in Japan were flat.

As proof of Toyota's success in spreading out its regional portfolio, an executive said North America now accounted for 44 percent of the automaker's total operating profit for the first three quarters, down from 57 percent a year earlier.

"You can see that our regional balance is improving," Senior Managing Director Takeshi Suzuki told a news conference.

For the full business year, Toyota kept its global vehicle sales forecast unchanged at 8.93 million vehicles, but adjusted the projections by region.

Cuts Sales in North America

In North America, it lowered its forecast by 20,000 units to 2.97 million. It also cut its projections for the mature Japanese and European markets, while raising the figures for Asia and other regions.

The company is also aiming to speed up cost cuts by working with suppliers to design vehicle components and systems more efficiently under its "Value Innovation" project -- fruits of which will first appear in a remodeled Crown sedan this month.

Honda and Nissan both reported a double-digit rise in profits last week, with sales advancing in most markets.

Nevertheless, share prices of Japan's top three automakers have plunged over the past year as investors shunned companies with a big exposure to the United States.

Toyota is the world's biggest carmaker by sales, having overtaken GM in 2006. GM, which includes in its tally cars built by a minority-held Chinese joint venture, says it still holds the top spot by a few thousand vehicles.

Toyota has forecast a slight rise in its U.S. sales this calendar year with new models such as the Corolla sedan due for launch, although it anticipates softer overall demand. Toyota's U.S. sales fell 2.3 percent in January from the year before.

Shares of Toyota lost 25 percent in the year to Monday, leading a 23 percent fall in Tokyo's transport sub-index ITEQP. over the same period. Honda shed 24 percent and Nissan dropped 28 percent.

Prior to the earnings announcement, Toyota shares ended down 2 percent on Tuesday, in line with the subindex.