UPDATE 2-Toyota upbeat on U.S. recovery, forecasts record profit

Tue Feb 4, 2014 5:39am EST

* Toyota raises FY 2013/14 oper profit outlook 9 pct to record $23.7 bln

* Toyota expects U.S. auto market to continue mild recovery

* Uncertainty looms in emerging markets

By Yoko Kubota

TOKYO, Feb 4 (Reuters) - Toyota Motor Corp expects the U.S. auto market to continue a mild recovery in 2014 despite poorer than expected sales last month, an executive said, although concerns linger that it will face intensified competition and eroding profits in its largest market.

Toyota, the world's best-selling automaker, raised its operating profit forecast - as expected - to a record 2.4 trillion yen ($23.7 billion) for the year to end-March and forecast that industry-wide U.S. sales would edge up to about 16 million vehicles in 2014 from last year's 15.58 million.

Toyota already faces uncertainties in emerging markets, which account for 45 percent of its sales and are reeling under the tapering of economic stimulus by the U.S. Federal Reserve.

"Because downside risks exist in emerging markets such as the so-called 'fragile five', including Indonesia and Brazil, how Toyota's sales go in the developed markets will be increasingly important for it to maintain its profitability," said Takumi Hoshi, an automotive sector analyst at Toyo Securities.

Toyota still has room to boost profitability in North America, where its operating margin was 5.2 percent in October-December, below 9.1 percent for its global business.

But competition is intensifying in North America, which accounts for nearly 30 percent of its global vehicle sales and about 15 percent of its operating profit.

U.S. sales of its mainstay Camry passenger sedan, which faces stiff competition from Ford Motor Co's Fusion and Honda Motor Co's Accord, dropped 1.1 percent in the last quarter from a year ago.

For the financial year to March, Toyota cut its North American sales forecast by 1.1 percent to 2.6 million vehicles, also citing its relatively weak lineup for pickup trucks compared with Detroit's Big Three.

Four of the top five U.S. auto sellers on Monday blamed extreme winter weather for poorer-than-expected sales in January.

At the same time, the frigid temperatures were also the seen as the reason for a sharp slowdown in U.S. manufacturing activity in January. Share markets around the world slumped after the data, worried about fresh signs the U.S. economy was stuttering.

Shares in Toyota closed down over 5.5 percent on Tuesday.

FOCUS ON MEDIUM TERM

Toyota on Tuesday raised its operating profit forecast for the financial year by 9 percent to a record 2.4 trillion yen ($23.7 billion), finally moving back above pre-Lehman levels as the weakening of the yen over the past year boosted the profitability of its export business.

That marks a dramatic recovery following a series of crises over the past five years, including the Lehman crisis, global recalls and natural disasters in Japan and Thailand.

For the October-December quarter, Toyota posted 600.5 billion yen in operating profit, nearly five times the year-ago result.

But it remained reticent on any concrete commitments to deploying the extra cash it has generated, saying it will stick with plans not to invest in any new plants over the next three years.

"We believe it is important not to be pulled in different directions by day-to-day conditions, and to think of what we need to do now in order to grow sustainably in the medium to long term," Managing Officer Takuo Sasaki told a news conference.

Earlier on Tuesday, Fuji Heavy Industries, maker of Subaru cars, also raised its operating profit forecast for the year to March by 11.5 percent to a record 310 billion yen, saying it so far it has not seen any impact on its U.S. business from recent market moves.

Japan's smallest carmaker expects U.S. sales to rise 23 percent this financial year backed by the popular Forester SUV and Outback wagon.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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