Toyota quarterly profit jumps 43% on cost cutting, lower expenses

TOKYO – Toyota Motor Corp.'s operating profit surged 43 percent in the latest quarter as cost cutting, lower selling outlays and falling warranty expenses offset unfavorable foreign exchange rates and helped pilot the automaker to a record full-year net income.

Operating profit rose to 629.6 billion yen ($5.93 billion) in the automaker's fiscal fourth quarter ended March 31, while net income advanced 21 percent to 480.8 billion yen ($4.53 billion).

Revenue rose 1.9 percent to 7.58 trillion yen ($71.36 billion).

Global retail sales increased 2.2 percent to 2.6 million vehicles in the January-March period, including results from its Daihatsu small-car subsidiary and truck-making affiliate Hino.

Worldwide wholesale volume declined 1.8 percent to 2.3 million.

In announcing the earnings results Wednesday, Executive Vice President and CFO Koji Kobayashi credited the uptick in quarterly profit on companywide cost controls and restraints on incentives. Results were also lifted by a 145 billion-yen ($1.37 billion) improvement from a year earlier thanks for lower outlays to cover quality-related issues such as the recall of faulty Takata airbags.

For the full fiscal year ended March 31, Toyota's operating profit increased 17 percent to 2.40 trillion yen ($22.59 billion), from 1.99 trillion yen ($18.73 billion) a year earlier.

Net income jumped 27 percent to a record 2.49 trillion yen ($23.44 billion) from 1.83 trillion yen ($17.22 billion) the year before. U.S. tax breaks, which reduced the corporate rate to 21 percent from 33 percent starting Jan. 1, helped pump up the net income for the full year.

Revenue also reached a new all-time high, increasing 6.1 percent to 29.38 trillion yen ($276.60 billion), from 27.60 trillion yen ($259.84 billion) a year earlier.

Wholesale volume dipped just a hair to 8.96 million vehicles, from 8.97 million the year before. Retail sales increased 1.9 percent to 10.44 million vehicles, from 10.25 million.

Toyota is battling unfavorable exchange rates and plateauing demand in its biggest market, the U.S., where the maker of the Camry and Corolla sedans has been slow to react to the customer stampede from cars to light trucks. At the same time, it is racing to ramp up business in China and clamp down on costs to channel funds into next-generation technologies.

Speaking at the earnings announcement, President Akio Toyoda said the industry is at a turning point where traditional automakers are at risk of being displaced by newcomers from China, Silicon Valley and the high-tech sector.

"With even our rivals and the rules of competition also changing, a life-or-death battle has begun in a world of unknowns," said Toyoda, grandson of the automaker's founder. "Technology companies, who are our new rivals, with speed many times greater than our own and backed by abundant funding, are continuing to aggressively invest in new technologies."

Toyoda said the company must redouble its cost-cutting efforts and channel more profits into the hot new areas of autonomous driving, electric vehicles and connectivity.

The company has already been splashing out cash in these areas.

Last year, it created a joint venture with Mazda Motor and Denso to develop technologies for electric vehicles. Since then, it has brought Subaru and Suzuki into the fold.

Toyota also has been aggressively vocal in saying it is developing next-generation solid-state batteries by the early 2020s to jump-start EV adoption.

Earlier this year, it channeled out $2.8 billion to create another new company, Toyota Research Institute – Advanced Development, to develop the software that runs self-driving cars.

Toyota announced last month it would install vehicle-to-vehicle transmitters across most of its Toyota and Lexus lineups in the U.S., beginning in 2021.

And this month, the company said it would open a 60-acre site in Michigan to test autonomous vehicles in scenarios that are too risky to execute on public roads.

In order to afford such investments, Toyoda said the company must redouble its efforts to control costs and be innovative in deploying its famed Toyota Production System beyond the assembly plants and into the offices and r&d centers.

"The reality is that the notion of high operational costs have emerged as an issue to tackle," Toyoda warned. "What used to be the norm had somewhere along the way ceased to be so. Realizing this has led to a new start. In all workplaces, there is a call to action to fundamentally review fixed costs."