May 11, 2018 / 4:15 AM / a year ago

Japan's Subaru sees profit slide on stronger yen, rising marketing costs

TOKYO (Reuters) - Japan’s Subaru Corp (7270.T) on Friday forecast a third-straight year of falling operating profit as it expects a stronger yen and increased marketing costs in the United States to offset higher global car sales.

FILE PHOTO: The logo of Subaru Corp. is displayed at the company's Tokyo headquarters in Tokyo, Japan October 27, 2017. REUTERS/Kim Kyung-Hoon/File Photo

Japan’s sixth-biggest automaker expects profit to slide 21 percent to 300 billion yen ($2.74 billion) in the year to March 2019, its lowest since 2013 and undershooting a median forecast for a rise to 391.8 billion yen according to Thomson Reuters I/B/E/S.

Operating profit was 379.45 billion yen in the year ended March 2018, in line with analyst estimates.

Subaru's forecast is based on an assumption that Japan's currency will average around 105 yen JPY= to the U.S. dollar, appreciating from 111 yen last year.

That will result in a 58.4 billion yen hit to profit from currency swings, while marketing expenses including costs for U.S. discounting will have a negative impact of 19.4 billion yen.

Subaru and bigger rivals including Toyota Motor Corp (7203.T) and Honda Motor Co Ltd (7267.T) are bracing for a slide in operating profit due to a stronger yen, which can squeeze earnings repatriated from abroad. It also raises costs of exported vehicles and parts, making Japanese products less competitive overseas and denting profit margins.

Despite sagging profits, they are ramping up research-and-development spending at a time when industry focus is on electrification and automation amid demand for vehicles powered by cleaner technologies.

Subaru has enjoyed years of strong growth due to ballooning U.S. demand for its rugged sport utility vehicles (SUVs) and crossovers including the Forester and Outback, which it has marketed as niche lifestyle products.

But as competition in the U.S. SUV segment has heated up, Subaru has increased discounts to raise sales. That has weighed on profit in its biggest market which accounts for nearly two-thirds of its global unit sales.

Subaru forecasts a 3.1 percent rise in global sales to 1.1 million vehicles in the year to March, driven by a 5.4 percent rise in sales in the United States.

In the just-ended year, Subaru saw a 2.8 percent rise in sales in Japan, where it has been rocked by a string of domestic scandals.

In April, it admitted that employees had manipulated mileage readings on vehicles for the Japanese market, which followed the surfacing of domestic compliance failings last year. The latter incident prompted Subaru to decide in March to strip Yasuyuki Yoshinaga of his role as president.

Reporting by Naomi TajitsuEditing by Christopher Cushing

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