Japan’s Toyota, Honda to see further fall in April-June profits

12 May 2011 07:28  [Source: ICIS news]

By Nurluqman Suratman

SINGAPORE (ICIS)--Toyota Motor and other major Japanese automakers are expected to post a further decline in their financial performance in the second quarter of this year after a slump in production and profits during the first three months of 2011, analysts said on Thursday.

The twin natural disasters that struck northeast Japan on 11 March paralysed auto parts supply chains, triggering production shutdowns and delays as well as cancellation of orders.

The operations of 40 auto parts manufacturers in Japan have been jeopardised by plant outages and power shortages following the earthquake, said a report by Zacks Equity Research.

The automobile industry is a large end-market for materials, such as polypropylene (PP), nylon, acrylonitrile-butadiene-styrene (ABS), polyurethane (PU) flexible foam, synthetic rubber as well as paintings and coatings.

Toyota, the world’s biggest automaker, said on 11 May that its net income for the first quarter of this year slumped to yen (Y) 25.4bn ($314m), compared with the Y112.2bn gain in the same period a year earlier. Sales during the period fell 12% year on year to Y4,642bn.

Meanwhile, Honda Motor posted a 27.6% year-on-year fall in net income during the first quarter of 2011 to Y44.5bn, while sales plunged 66.4% to Y2,213bn.

Honda and its domestic subsidiaries posted losses estimated at Y45.7bn as a result of the natural disasters, the company said in a statement on its website.

Although Toyota has not revealed its expectations for the new fiscal year, the automaker is expected to see a sharp decline in its business results in the second quarter, according to IHS Global Insight.

“The near term does not present a positive picture for its [Toyota's] financial situation following the natural disaster which hit its domestic market and operations,” the economic research and forecasting firm said in a report.

Toyota is expected to operate at about half its normal capacity amid continuing uncertainties over component supplies, the report said. It added that the problems with sourcing components from Japan are affecting Toyota's production schedules at its overseas facilities, leading the company to announce production adjustments in North America, Europe and Asia.

“It is expected that the automaker [Toyota] will see a sharp decline in its financial performance during the first quarter,” the report said, adding that this will affect the company's full-year earnings.

Toyota expects to release its earnings forecast for the fiscal year ending 31 March 2012 in the coming months. It first needs to have a clearer picture of the extent of the disaster’s impact on its financial performance in the medium term.

"We finished the fiscal year to 31 March 2011 with an improved operating income as a result of our efforts on marketing and cost reduction despite a negative impact of around Y100bn from the Great East Japan Earthquake,” said Toyota president Akio Toyoda in a statement.

“Our business environment continued to be challenging due to yen appreciation, among others," he added.

Honda, meanwhile, faces problems in gaining adequate supplies of electricity as well as components because its supply chain remains in turmoil, said a separate report by IHS Global Insight.

Honda does not expect to see its production returning to the usual levels until the end of 2011.

"We envision the second quarter being grimmer than the current quarter because even if production levels begin to pick up in Japan by then, there will still be a lag effect at our overseas factories," the report quoted Honda’s senior managing officer and director Fumihiko Ike as saying.

Honda, in its latest financial report, said it is "unable to reasonably calculate forecasts for consolidated financial results for the fiscal year ending 31 March 2012".

The company’s net income for the full-year period that ended on 31 March this year surged to Y534bn, versus a gain of Y268.4bn a year earlier. Its overall sales rose 4.17% to Y8,936.8bn.

Toyota’s full-year net income for the same period rose 95% to Y408.1bn, while revenues were flat at Y18,993.6bn, versus Y18,950.9bn in the previous fiscal year that ended 31 March 2010.

Nissan Motor is expected to release its financial results for the full year that ended on 31 March 2011 on Thursday.

($1 = Y80.93)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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