WRAPUP 2-Japan's second-tier automakers say on track for record profits

Thu Jul 31, 2014 8:56am EDT

* Mazda, Fuji Heavy's strong U.S. sales cover for Japan downturn

* Mazda says focusing on profitability over volume

* Mazda expects July Japan sales to drop 20 percent yoy

* Subaru maker Fuji Heavy's operating profit margin at 13 pct (Recasts, adds Mazda executive quote, U.S. incentive figures)

By Yoko Kubota

TOKYO, July 31 (Reuters) - Japanese automakers Mazda Motor Corp and Fuji Heavy Industries Ltd, which makes Subaru cars, said they are on track for record full-year profits after strong sales in the United States powered double-digit profit growth in April-June.

The United States is the biggest market for both of the carmakers which rank among the second-tier of Japan's auto firms, and is seeing industry-wide sales at eight-year highs.

The strength of U.S. demand offset weakness in Japan where the two firms stumbled in their fiscal first quarter ahead of new and remodeled vehicle launches, they said on Thursday.

The earnings surge for both companies also showed their focus on profitability over sales volume.

"This is a time when our patience is being tested," Mazda Executive Officer Tetsuya Fujimoto told reporters.

He warned Mazda's July vehicle sales in Japan likely fell 20 percent as it prepares to launch a remodelled Demio/Mazda2 subcompact in the fall.

"We can cover for the domestic drop with sales overseas," he said.

Mazda beat expectations with a 56.4 billion yen ($549.1 million) operating profit in April-June, up 54.4 percent and exceeding a 49.2 billion yen mean forecast of 11 analysts polled by Thomson Reuters I/B/E/S. Its operating profit margin for April-June improved to 8 percent from 6 percent a year ago.

Japan's fifth-biggest carmaker is boosting profit per vehicle as it launches fuel-efficient vehicles in its "Skyactiv" series that share common structures and are built under a new manufacturing system that cuts costs, Fujimoto said.

Mazda is following in the footsteps of Fuji Heavy, the smallest of Japan's seven passenger carmakers but with the highest operating profit margin at about 13 percent, in fostering a unique image and set of features for its vehicles.

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Fuji Heavy, whose all-wheel drive Subaru vehicles offer an advanced crash prevention system that has proved popular, booked its highest ever first-quarter operating profit of 78.7 billion yen, up 13 percent and in line with analyst expectations.

A weaker yen also helped to boost profit at both Mazda and Fuji Heavy, among Japan's three biggest auto exporters - along with Toyota Motor Corp - despite their second-tier status. Both stuck to their annual profit forecasts.

Shares of Mazda closed 1.3 percent higher ahead of the earnings, versus a 0.2 percent decline in the benchmark index . Fuji Heavy closed down 2.0 percent. So far this year, Mazda is down 8 percent and Fuji Heavy has fallen 2 percent, roughly in line with the Nikkei's 4 percent decline.

Mazda's April-June U.S. sales jumped 18 percent, helped by the launch of its remodelled Mazda3 compact. The average incentive per vehicle for the three months dropped 13.7 percent from a year ago to $1,563 - below Japan's top three carmakers Toyota, Nissan Motor Co and Honda Motor Co.

For Subaru, the incentive figure was even lower at $786. Fuji Heavy's U.S. sales grew 6 percent in April-June, backed by the popular Forester compact SUV.

But both automakers saw sales drop at double-digit rates in Japan in the first quarter ahead of vehicle launches, while a sales tax hike in April also weighed them down.

Fuji Heavy delayed the launch of its new Levorg station wagon in Japan by about a month to June.

Another headache for Fuji Heavy is its limited production capacity. Over the next few months, it will add 20,000 vehicles of annual capacity in Japan and 30,000 vehicles at its U.S. plant in Indiana. By 2016, it plans to boost the Indiana plant's capacity by 50 percent, to 300,000 vehicles. (Editing by Edmund Klamann, Christopher Cushing and Mark Potter)

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