Toyota shares slide after bleak profit forecasts

By Chang-Ran Kim and Sachi Izumi

TOKYO (Reuters) - Shares in Toyota Motor Corp skidded on Friday after the world's biggest automaker forecast its first annual net profit decline in seven years as it faces a triple blow of a stronger yen, rising materials prices and a slowing U.S. economy.

Toyota's shares, which have roughly followed movements in the dollar-yen rate this year, ended down 3.3 percent at 5,300 yen, wiping $6 billion from its market value to $177 billion. They lost as much as 4.7 percent shortly after trade opened on Friday.

News of Toyota's bleak outlook and the dollar's fall below 104 yen sent shares of other Japanese automakers downhill. Honda Motor Co lost 3.9 percent, Nissan Motor Co shed 1.6 percent and Mazda Motor Corp sank 4.4 percent.

Many analysts viewed Toyota's guidance for a 27 percent fall in net profit this business year to be an ultra-cautious one that factored in the manifestation of every possible risk, and held onto their assessment that it was better-positioned than many to weather the headwinds.

"At the moment, Toyota is assuming the worst possible scenario," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. He added that the shares' fall was likely tempered by optimism that Toyota would lift its forecasts in mid-year.

Goldman Sachs analyst Kota Yuzawa agreed.

"Although it looks negative at first sight, we see the new guidance as a minimum level that factors in every conceivable risk," he said in a report, keeping his rating at "buy".

Still, Toyota executives on Thursday did little to quell concerns about the increasingly tough environment in the United States, where it makes just under half of its profit.

For a graphic of Toyota's share moves, click here

TROUBLE IN THE U.S.

President Katsuaki Watanabe told reporters he didn't expect a U.S. economic recovery this year. Senior Managing Director Takeshi Suzuki said Toyota had set aside more cash this year for consumer incentives to sell pickup trucks, large SUVs and other gas-guzzling models. The automaker has slowed down production at two U.S. factories indefinitely while it works down swollen inventory.

"We restate our view that it will take time for Toyota to resolve its structural problems (in North America) and engender expectations of margin improvement strong enough to spark a recovery in the share price," JP Morgan analyst Takaki Nakanishi said in a report to clients.

The maker of the Prius hybrid has forecast an operating margin of 6.4 percent in 2008/09, down sharply from 8.6 percent last year and far from its medium-term target of 10 percent.

Another risk, Watanabe acknowledged, was the rise in Toyota's susceptibility to the dollar's fluctuations as it exports more cars to the Middle East, where a lack of supporting industry makes local production difficult. This increased the impact of a 1-yen change in the dollar on operating profit to roughly 40 billion yen, up from 35 billion yen in the year to March 2007, Toyota said.

"We've been enjoying consistent growth for many years, and these difficult times present a valuable opportunity to reflect on how we could improve our core strength," Watanabe said.