August 6, 2018 / 4:17 AM / 10 days ago

Japan's Subaru books worst quarterly profit in five years on U.S. sales slump

TOKYO (Reuters) - Subaru Corp on Monday reported its lowest quarterly profit in over five years, driven by a slump in demand for one of its popular sport utility vehicles (SUVs) in the United States before an updated model launches later in the year.

FILE PHOTO - Subaru's logo is pictured at its factory in Ota, north of Tokyo, Japan May 24, 2017. REUTERS/Kim Kyung-Hoon/File Photo

Operating profit at the smallest of Japan’s major automakers fell 51.8 percent in April-June from a year earlier to 57.6 billion yen ($517.38 million), as a rise in U.S. sales incentives also weighed on Subaru’s bottom line.

The result compared with a 63.6 billion yen average of seven analyst estimates compiled by Thomson Reuters I/B/E/S, and was Subaru’s weakest quarterly profit since January-March 2013.

The automaker said U.S. sales, which comprise more than 60 percent of its total, fell 13.9 percent, pushing overall global sales 12.3 percent lower to 237,900 vehicles.

In particular, U.S. sales of Subaru’s Forester SUV fell during the period, as customers held back from buying until a revamped model is launched in the coming months.

Subaru has also been increasing buying incentives in the United States, including for the Forester and Outback SUV crossover, as it tries to expand in the world’s second-largest vehicle market in the face of competition with much bigger rivals. That raised marketing costs in the first quarter.

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

TARIFFS

Subaru has been increasing vehicle production at its U.S. plant to address a jump in demand for its cars over the past few years, but it still imports roughly half of the cars it sells in the country from Japan.

As a result, a rise in auto import tariffs in the United States - as advocated by the U.S. President Donald Trump - could have a significant impact on Subaru as it would raise the cost of selling vehicles in the market.

The Trump administration has imposed tariffs on steel and aluminum. Those tariffs were having limited impact on materials costs at Subaru, which locally procures the majority of such materials for its U.S.-made vehicles, Chief Financial Officer Toshiaki Okada said at an earnings briefing.

He declined to comment on any possible impact of U.S. tariffs on autos and auto parts.

Subaru maintained its forecast for full-year profit to slide 21 percent to 300 billion yen in the year through March, due to the impact of a strong domestic currency and higher U.S. marketing expenses.

At home, Subaru in April said employees had manipulated mileage readings on vehicles for the Japanese market, adding to domestic compliance failings it revealed a year earlier. The latter incident prompted Subaru to appoint a new president.

Reporting by Naomi TajitsuEditing by Christopher Cushing

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