Toyota shares jump on profit outlook, fading recall woes

Toyota Motor Corp's logo is seen behind a traffic sign in Yokohama, south of Tokyo, January 26, 2011.

TOKYO (Reuters) - Squeezed by a sales slump and recalls, Toyota Motor Corp (7203.T) has had little to boast about since becoming the world's No. 1 car maker in 2008.

It appeared to have turned a corner on Tuesday with a better-than-expected profit outlook and a U.S. government report giving its cars a clean bill of health .

Investors responded on Wednesday by clamoring for the automaker's shares, which jumped nearly 5 percent to a nine-month high, making it the most actively traded stock in Tokyo and the biggest percentage gainer on the Nikkei 225 index.

"The numbers were good. The second thing was the U.S. report which says there are no problems with Toyota electronics. It was a double header," said Chris Richter an auto analyst with CLSA in Tokyo.

"This is still a work-in-progress and they have a lot of things to fix, but if things are getting better I want to get in Toyota now when things are still bad," he added.

Posting a smaller-than-expected fall in third-quarter operating profit Tuesday, Japan's biggest company raised its prediction for the full year by 45 percent to 550 billion yen (4.16 billion pounds) saying stronger sales in Asia and lower costs were boosting profitability.

U.S. transport officials later added to the car maker's cheer by clearing its electronics of causing cars to accelerate unintentionally. The findings vindicated Toyota's claim that it had identified and fixed the only known safety problems with popular vehicles like the Camry.

"The problem they had in the US seems to be over and they don't have a big problem at the moment with the management of the company and the product," said Yuuki Sakurai, president of Fukoku Capital Management in Tokyo.

CAUTION ON HOME WOES

For Toyota's boss, Akio Toyoda, who broke down and cried in front of his U.S. employees last year amid a tsunami of car recalls that in the past year have amounted to about 14 million vehicles, it provides relief from shareholder pressure to mend the automaker's earnings engine.

"Toyota still has a challenge competing against its rivals in emerging markets, but there are hopes that it can regain its market share in the U.S. market," said Mitsushige Akino, a fund manager at Ichiyoshi Investment Management. Toyota's lifting of its annual outlook was a source of relief for investors, he said.

Investors and analysts, however, caution that for Toyota, which just stayed ahead of General Motors Co (GM.N) as the world's biggest automaker last year, the next chapter in its recovery could be tougher still.

Unlike its nearest domestic rival, Nissan Motors Co. (7201.T), which releases its Q3 results later on Wednesday in Tokyo, Toyota has been slow to tackle money-losing production at home that is squeezing overall profitability.

"The policy of Nissan is that they are not interested in making their own cars anymore, they have tie-ups with other car manufacturers like Mazda Motor Corp (7261.T) or Mitsubishi Motors Corp (7211.T). It means they don't really care where the car comes from," said Fukoku Capital's Sakurai.

The titan of Japan's auto industry still makes 43 percent of all its cars in Japan, most of those in or near a small city in central Japan that named itself Toyota City after its biggest employer.

Nissan's own home output is a much smaller 28 percent, while Honda Motor Co (7267.T) makes an even smaller 27 percent of its cars in Japan. That means they are far less vulnerable to the profit sapping impact of a strong yen.

Yet, says, CLSA's Richter, matching its two rivals will be far tougher for Toyota. "They will become a lightening rod. If they thought they had political fall out in the U.S. from the recall crisis, wait till if they ever start monkeying around with jobs in Japan."

Toyota climbed 4.6 percent to 3,650 yen. The Nikkei average .N225 was up 0.08 percent.

(Additional reporting by Chang-Ran Kim, Ayai Tomisawa and Isabel Reynolds; Editing by Edwina Gibbs and Muralikumar Anantharaman)