Toyota’s $242-million surprise profit fails to impress investors

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Tokyo: Toyota Motor Corp’s surprise quarterly profit and halving of its annual loss forecast failed to convince investors the world’s top carmaker is back on track, as government subsidies peter out and a strong yen takes its toll. Toyota’s second-quarter net profit fell 84% to 21.84 billion yen ($242 million), while revenue dropped 24% to 4.54 trillion yen.

Major Japanese automakers have raised their forecasts for the year to March 2010 as they squeeze out savings and government incentives from Germany to China, the US and Japan prop demand through the worst economic crisis in generations.

But with such stimulus programmes beginning to run out, Toyota is looking to eliminate more spending, announcing its exit from Formula One racing on Wednesday to put that annual budget of around $300 million to better use. “The biggest challenge for Toyota now is cutting overheads,” said Koji Endo, a senior analyst at Advanced Research Japan in Tokyo.

“The company has not been able to respond to a sudden plunge in revenue with speedy cost reductions.”

Toyota, until two years ago the world’s most profitable automaker, is expecting the biggest loss among its domestic peers this year, weighed down by severe overcapacity after adding new factories during its boom years before the financial crisis hit.

While Toyota said it expects an additional 350 billion yen ($3.9 billion) in emergency cost savings than what it had planned three months ago, investors were unimpressed by its revised outlook, especially after the consensus-beating forecasts from rivals Honda Motor Co and Nissan Motor Co.

“It seems too large,” Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. “Toyota looks a little less attractive than other companies such as Honda and Nissan,” he said, adding the market may find the news disappointing. Toyota shares ended down 0.8% before the results, having risen 23% this year. Nissan has more than doubled, while Honda is up by almost half over the same period.

Toyota narrowed its annual net loss forecast to 200 billion yen from 450 billion yen, as it lifted its group-based global vehicle sales forecast by 6.5% to 7.03 million units.

For the July-September quarter, the maker of the Prius hybrid car reported an operating profit of 58.0 billion yen, down 66% from a year earlier but beating an average estimate of a loss of 63 billion yen from five analysts.