August 1, 2018 / 6:31 AM / 4 months ago

Japan's Mazda posts lower quarterly profit as expenses bite

TOKYO (Reuters) - Mazda Motor Corp (7261.T) on Wednesday posted a 17 percent drop in operating profit for the first quarter, as a rise in discounting on U.S. vehicles and costs to improve its dealership network in the country overshadowed an increase in sales.

FILE PHOTO: The logo of Mazda Motor Corp. is displayed at the company's news conference venue in Tokyo, Japan May 11, 2018. REUTERS/Kim Kyung-Hoon

Operating profit at Japan’s fifth-largest automaker was 33.1 billion yen ($295.48 million) for the April-June period, versus 39.9 billion yen a year ago. However, this was better than an average estimate of 25.2 billion from seven analysts polled by Thomson Reuters I/B/E/S.

Mazda reiterated its forecast for a 28 percent drop in operating profit to 105 billion yen in the year ending March, the weakest since 2013, as it expects the U.S. upgrade costs and a strong yen to drag on earnings even as it extends a six-year run of rising vehicle sales.

As one of Japan’s smaller automakers, Mazda faces growing costs to stay competitive in an industry that is being disrupted by new technologies such as driverless and electric vehicles.

A possible hike in U.S. tariffs on imported cars is further muddying projections for the sector globally.

Mazda’s vehicle sales rose 7 percent worldwide in the quarter, lifted by a 10 percent rise in the United States to 80,000 units. Sales in China, which it is expecting will become its biggest market this year, slipped 4 percent to 68,000 units.

Business in North America, another key market, recovered from a year ago as higher sales of its SUV models including the CX-5 helped push up U.S. sales 15.7 percent in the first half 2018. Sales at home rose 19 percent in the first quarter.

It is investing in a new plant in the U.S. state of Alabama, a joint project with Toyota Motor Corp (7203.T), which will give Mazda a production foothold in the United States.

At the moment Mazda imports all of its vehicles sold in the U.S. market, making it vulnerable both to any increase in import tariffs and currency fluctuations.

The United States in May launched an investigation into whether imported vehicles pose a national security threat and President Donald Trump has repeatedly threatened to quickly impose tariffs of up to 25 percent.

On Tuesday, Honda Motor (7267.T), Japan’s No.3 automaker, said the impact of U.S. steel and aluminum import tariffs on its bottom line had so far been limited, as it posted a surprise jump in quarterly profits to their highest in more than a decade on improving North American sales.

Reporting by Naomi Tajitsu; Editing by Himani Sarkar

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