Toyota quarterly profit falls 28% on pandemic impact

TOKYO – Toyota's operating profit fell 28 percent and net income plunged 86 percent in the latest quarter as the coronavirus pandemic forced worldwide factory closures and hit vehicle sales.

Operating profit dropped to 384.0 billion yen ($3.56 billion) in the company's fiscal fourth quarter ended March 31, Toyota said in its earnings report on Tuesday.

Net income fell 86 percent to 63.1 billion yen ($585.29 million) in the period, as revenue declined 8.4 percent to 7.10 trillion yen ($65.86 billion).

Global retail sales declined 11 percent to 2.32 million vehicles in the January-March period, including results from its Daihatsu small-car subsidiary and truck-making affiliate Hino.

Worldwide wholesale volume retreated 6.5 percent to 2.13 million vehicles.

In announcing the earnings results, CFO Kenta Kon warned that operating profit will drop 80 percent in the current fiscal year ending March 31, 2021.

Citing uncertainty surrounding the ongoing impact of the COVID-19 pandemic, Kon said Toyota would withhold making a net income forecast. Revenues should decline 19.8 percent, on an anticipated 15 percent decline in global retail sales to 8.9 million vehicles in the current fiscal year, he said.

Toyota’s slumping profit comes as the worldwide slowdown hammers earnings throughout the industry. Ford reported a $632 million loss in its first quarter and projected a $5 billion hit in the second. Fiat Chrysler Automobiles posted a first-quarter loss of $1.48 billion. Meanwhile, General Motors managed to stay in the black, but saw its net income plunge 87 percent.

Kon put the blame on the coronavirus pandemic. In Toyota’s fiscal fourth quarter, the virus outbreak chopped 160 billion yen ($1.48 billion) off operating profit and 380 billion yen ($3.52 billion) off revenue. He said April should be the bottom, as market conditions gradually improve in the U.S., Europe, China and another markets.

But a return to normal business, in the U.S. at least, could take the rest of 2020, Kon said.

"Our assumption is that April will be the bottom, and little by little we will recover," Kon said of operations in the key North American market. "By the end of the year and the beginning of the new year, we believe we will be in normal operation mode."

Kon said the company will delay some new model plans because of the pandemic slowdown.

"When we look at future, new model plans, there there will be some projects that will be delayed," Kon said. "There will be some delays in development activities. And for new model launches we are going to take this time as an opportunity to review what we have done in the past as business as usual. So for our full-model changes, minor changes and small-change projects, we are doing a total review of whether we should do it or not."

Kon declined to provide details on what changes were in store but said they would not be significant.

Despite the deteriorating environment, President Akio Toyoda said the company had no plans to scale back on its big investments in next-generation technologies, such as the Woven City, town of tomorrow it is building in the foothills of Mount Fuji. Toyota will keep its R&D investment stable at 1.1 trillion yen ($10.2 billion). As a percentage of revenue, R&D outlays will increase to 4.6 percent, from 3.7 percent.

“Recently, we have planted the seeds of a new Toyota,” Toyoda said. “And for this kind of new projects, we will continue pushing the accelerator pedal.”

Toyota’s results were hurt by falling sales and soaring costs for suspended operations. The company halted production at plants around the world in response to government regulations meant to limit transmission of the coronavirus. And even in areas with fewer restrictions, Toyota scaled back output in line with falling demand to forestall a huge pile up of inventory.

May will be a big month for Toyota bringing much of its global operations back online, even if it is with partial production. Toyota targeted a gradual ramp up of North American plants from May 11, and its plant France returned to work in early May. Toyota’s factories in China, the epicenter of the global coronavirus outbreak, resumed normal operation from March 30.

Plants in other European countries are also expected to resume in May, along with other factories across Latin America and Asia. But some plants in Japan still operate on a staggered schedule, while the restarts of some operations in India, Russia, Malaysia are still on hold.

Toyota’s North American operation widened its quarterly operating loss. North America booked a regional operating loss of 39.0 billion yen ($361.7 million) in the period, as regional wholesale volume fell 8.3 percent to 600,000 units.

In Europe, wholesale volume declined 3.7 percent to 259,000 vehicles in the latest quarter. European regional operating profit decreased 9.1 percent to 31.0 billion yen ($287.5 million).

Bob Carter, head of sales for Toyota Motor North America, said sales departments of roughly one-third of the 1,482 Toyota and Lexus dealers in the U.S. were closed in April because of the pandemic, though almost all continued selling cars online with home delivery.

He said the "vast majority" of the automaker's 84,694 sales in April were online.

For the full fiscal year ended March 31, Toyota’s operating profit dipped just 1 percent to 2.44 trillion yen ($22.63 billion). Net income declined 10.3 percent to 2.08 trillion yen ($19.29 billion) in the period, as revenue retreated 1 percent to 29.93 trillion yen ($277.62 billion).

Global retail sales declined 1.4 percent to 10.46 million vehicles in the fiscal year. Worldwide wholesale volume essentially flatlined at 8.96 million vehicles.

In February, Toyota had upgraded its earnings outlook for the full-fiscal year ending March 31.

At the time, Toyota said it expected stepped-up cost reduction efforts and better financial services to help fuel a 1.3 percent increase in operating profit for the fiscal year. And it forecast net income to climb 25 percent. It expected worldwide retail sales of 10.73 million units.