Toyota announces $6.3 billion buyback and raises annual outlook
Toyota, the world’s largest automaker, on Tuesday increased its annual operating profit forecast by 13% to account for a significantly weaker yen and revealed a share buyback plan of up to 1 trillion yen. However, certain fundamentals continued to exhibit weakness, as Toyota disclosed a 9% decrease in first-quarter operating profit, marking its fifth consecutive quarter of decline and falling somewhat short of expectations. Sales in China have declined, adversely impacting the company’s performance, while the conflict in Iran has negatively affected sales in the Middle East and resulted in heightened costs for raw materials and components. Toyota also acknowledged that its upward revision did not factor in the repercussions of a devastating earthquake that recently affected Japan’s Kyushu island, which compelled the company to suspend production at four domestic facilities. Shares in the automaker closed down 1.5%, which some analysts attributed to disappointment in the size of the share buyback. After sharply revising down its average yen assumptions to 160 yen to the dollar from 150 yen, the Japanese automaker now expects 3.4 trillion yen ($21.6 billion) in operating profit for the year to end-March. That figure is, however, still 10% lower than the previous financial year.
Following the U.S.-Japan joint yen-buying intervention late last week, the yen was trading at approximately 157 yen to the dollar on Tuesday, a notable increase from the lows of nearly 164 observed last month. Toyota has also now transitioned to overland routes for shipping cars to the Middle East, circumventing the Strait of Hormuz, which contributes positively to earnings. It revised its estimate of the impact of the Iran war—encompassing increased costs for raw materials like aluminium, delivery delays, reduced sales volumes, and support for suppliers—to 510 billion yen this fiscal year, down from its earlier forecast of 670 billion yen. Even so, that remains one of the largest hits to earnings from the war disclosed by a global company to date. Overall, Toyota’s global sales experienced a decline of 3.5% during the quarter. China, the world’s largest car market, has experienced a significant downturn, with sales plummeting by 28%. Like many foreign automakers, it has experienced a decline in sales due to slower economic growth and a significant shift towards domestic electric vehicle brands. These brands have gained a competitive advantage with their appealing features, a trend that has intensified as the Iran war drives petrol prices higher.
Sales in the Middle East declined by one-third due to the war. The new routes for vehicle transport indicate that starting in September, the automaker anticipates that 25% of its exports to the region will be impacted, in contrast to an earlier projection of 50% for the entire year. In the U.S., Toyota’s biggest market, sales were up a mere 1%, with the automaker lagging Ford, GM and Stellantis, which have benefited from strong demand for high-margin pickup trucks. Toyota’s plans to repurchase shares valued at up to 1 trillion yen represent approximately 4.22% of the total outstanding stock. It also intends to cancel 200 million shares. “The scale of the buyback was somewhat disappointing to some,” said James Hong, adding Toyota was sitting on 15 trillion yen of net cash and its stock was trading below book value, which had created expectations of bigger shareholder returns.
The automaker has increased its annual vehicle sales target by 100,000 units to 9.7 million, attributing this adjustment to robust demand in North America and Europe. Toyota has announced a target of a 10% increase in hybrid car sales, aiming for 5 million units in the current financial year. The company indicated plans to enhance battery production capacity to satisfy this demand and is set to transition from nickel-metal hydride batteries to lithium-ion technology over time. The change is expected to enhance performance while simultaneously reducing costs by several tens of thousands of yen per vehicle, it added. Shares in Toyota have lost 13% this year as automakers grapple with challenges from the Iran war and last week’s quake.
