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Toyota (TM) Roars Back into the Black

By: , dated August 6th, 2012

Last Friday, Toyota Motor (TM: Charts, News) posted its highest earnings per share in four years and raised it guidance for the rest of the year. The Japanese automaker, which recently reclaimed the top automaker spot from General Motors (GM: Charts, News) last month, bounced back from a painful 2011, when the March 2011 earthquake and tsunami caused earnings to drop 99%. Toyota posted earnings of 290.3 billion yen ($3.7 billion USD) on revenue of 5.5 trillion yen ($70.5 billion). Toyota posted an operating loss of 108 billion yen in prior year quarter. Revenue rose 60% from the prior year quarter. Quarterly vehicle sales nearly doubled from 1.2 million to 2.3 million vehicles. President Akio Toyoda announced a goal of producing at least three million vehicles annually in Japan.

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For the full year, Toyota raised its full year production forecast 23% to a record 9.76 million vehicles, at a time when its industry peers have posted mixed results. Although Chrysler and Nissan posted gains in the most recent quarter, Ford and General Motors slid and lost market share, due to ongoing troubles in Europe and sluggish Asian growth. Ford posted a 57% decline in earnings while General Motors reported a 38% drop.

Toyota’s forecast also tops the 9.03 million vehicles General Motors sold last year. Senior managing officer Takahiko Ijichi remained modest regarding the forecasts. “We are not aiming to be the world’s number one,” he stated. “This is just the result of efforts to sell cars one by one.” Toyota also stated that it intends to manage its growth more carefully than the “boom years” prior to 2008. Toyota executives believe that the company lost the reins on its quality control during those years, which resulted in several high profile recalls.

During the quarter, Toyota posted gains in all of its regions, including Europe. However, Toyota is less exposed to Europe than its western rivals. By the end of 2011, Toyota intends to grow its U.S. market share to 14%, an increase from the 12.9% it forecast in the previous year. Toyota expects a net profit of 760 million for the full year, and an operating profit of 1 trillion, on revenue of 22 trillion yen.

The company is expected to face macro headwinds as the yen appreciates further this year, making exports to the United States and Europe more costly. Toyota expects the yen to hold steady against the U.S. dollar at 80 yen per dollar, and the euro to remain volatile near 101 yen per euro.

To offset the strong yen, Toyota is increasing production capabilities outside of Japan. Last month, Toyota announced that it would shift a part of its Lexus SUV production to Canada, and its Yaris production from France to the United States. Many of its vehicles are also produced in Thailand, a common production base for Japanese automakers. However, Toyota still manufactures approximately 40% of its vehicles in Japan, compared to 25% for Honda and Nissan.

Much of the company’s expected revenue was attributed to strong sales of its best-selling Camry full-size sedan and its hybrid Prius. In addition to besting its American rivals, Toyota also beat its Japanese rivals Nissan (NSANY: Charts, News) and Honda (HMC: Charts, News), which posted respective profits of 72.28 billion and 131.72 billion.

Shares of Toyota rallied 5% on Friday. The stock currently trades at 10.3 times forward earnings with a 5-year PEG ratio of 0.31, meaning that it is fundamentally undervalued. The company pays a bi-annual dividend payments of 76 cents per share – a 1.6% yield at current prices.

Other News About TM
Toyota Rebounds to Post Stronger-Than-Expected Profit
Toyota bounces back as U.S. automakers struggle.
Toyota Raises Sales Plan as Quarterly Profit Zooms
Toyota sees brighter days ahead.

Other Stocks in the News
Knight Capital Gets Credit Line, But Customers Stay Away
Knight Capital is in hot water after trading problems.
Zipcar’s Second-Quarter Loss Narrows, Shares Slide
Zipcar shares plunge on weak earnings.

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Leo Sun Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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