Toyota Motor Corp. (TM) revealed that although it expects its European operations to report a loss in the first half of 2011, it will revert to profit for the full year 2011.
Despite reporting a profit for the first quarter of the year, the company’s earnings for the first half of 2011 will be marred by the adverse impact from the earthquake and tsunami in Japan on March 11.
Pre-Disaster Forecast
Before the disaster in Japan, Toyota announced that it expects European sales to rise to 1 million vehicles by 2013–2014 with the addition of at least 10 hybrid models. The automaker, which already has an established market in the continent, currently offers six hybrid models in the region under its namesake and Lexus lineups.
In 2010, Toyota sold 808,000 vehicles in Europe, Israel and Central Asia, exceeding its guidance of 800,000 units. Among them, 780,000 units were sold entirely in Europe. The U.K. was the largest market, followed by Russia, Italy and Germany.
Toyota’s European operations have been losing money in fiscal year 2011. In the first nine months of the year, net revenues in the region fell 12% to ¥ 1.45 trillion while the operating loss was ¥6.7 billion during the period.
However, the automaker anticipates European operations to contribute to the company’s earnings and generate free cash flow from the next fiscal year based on its surging sales and hybrid offerings.
Hybrid vehicle sales grew 29% to 70,500 units in 2010, touching an all time high. It was driven by impressive 15,237 unit sales of Auris , outplaying its target by 9%.
Recent Company Forecast
Recently, Toyota released its guidance for the fiscal year ended March 31, 2012. The company expects the full year profit to fall 31% to ¥280 billion ($3.5 billion) from ¥408 billion a year ago driven by lower sales on the back of earthquake and tsunami in Japan and stronger yen.
The Zacks #3 Rank (Hold) company has projected global sales to decrease to 7.24 million vehicles from 7.31 million vehicles in fiscal 2011, which will reduce earnings by ¥120 billion. The automaker revealed that strong yen will reduce the yearly profit by ¥100 billion.
Toyota revealed that it expects to gear up its production level from 90% of normal to near full level in July and then to completely normal by the end of the year. The automaker plans to make up for the lost production in Japan by manufacturing an additional 350,000 cars and trucks from October through March 2012.
Toyota has already lost its position as the world’s biggest car maker to General Motors Company (GM) and Volkswagen AG in the first quarter of the year. Therefore, the company’s sluggish movement towards recovery in profits may worsen its position going forward.
