May 10, 2019 / 1:44 AM / 16 days ago

Subaru expects recovering sales to boost profit after dismal 12 months

TOKYO (Reuters) - Japanese automaker Subaru Corp on Friday forecast profit to jump about a third this year on a projected recovery in vehicle sales, bouncing back from last year when earnings halved due to production delays and mounting product recalls.

FILE PHOTO: The 2020 Subaru Outback is revealed at the 2019 New York International Auto Show in New York City, New York, U.S, April 17, 2019. REUTERS/Shannon Stapleton/File Photo

Japan’s seventh-biggest automaker inadvertently uploaded its financial report on its website hours ahead of schedule. It initially withdrew the material, but not before social media noticed, sending its shares down 2.2% to a near four-month low.

The report comes after a year in which output stopped for two weeks at Subaru’s sole assembly plant in Japan due to a defective steering component. Output also slowed to improve testing processes after Subaru said it cheated on domestic inspections.

Together, the issues cut 6.3% from global vehicle sales last year to 999,900 cars and bumped up costs, compounded by the cost of recalls in Japan prompted by the inspection cheating.

“Quality and production issues slowed output, which led to the drop in sales,” said Chief Financial Officer Toshiaki Okada.

Domestic output will remain curbed during the first half of the current financial year while Subaru improves inspection and production processes, and then return to normal at “some” of its three production lines, said Chief Executive Tomomi Nakamura.

The report, officially released at 10:25 a.m. (0125 GMT) instead of the scheduled 1:00 p.m., showed an operating profit forecast for the year through March 2020 of 260 billion yen ($2.37 billion). That would be 33% higher than the year prior under international accounting standards adopted from this year.

Under the previous Japanese accounting standards, the forecast would be 250 billion yen, up 28%, Subaru said.

The Japanese automaker attributed the rise in part to a 5.8% rise in vehicle sales to 1.058 million cars.

In the just-ended year, Subaru met analyst expectations, saying profit fell 48.5% to its lowest since 2013.

Subaru’s recent production- and quality-related issues are side effects of rapid growth following increased output in recent years, to keep up with booming U.S. demand from for its rugged-looking, all-wheel-drive cars, such as its Legacy sedans and Forester sport-utility vehicle crossovers.

The automaker for years raked in higher sales in the United States, its biggest market accounting for more than 60 percent of overall sales. However sales have plateaued in the past year, snapping a five-year winning streak.

As the smallest of Japan’s major automakers, Subaru is also struggling to invest in and develop lower-emission vehicles and on-demand transportation services widely seen as necessary to survive technological upheaval in the global auto industry.

As a result, it has formed a partnership with Toyota Motor Corp under which it will use technology developed by its deeper-pocketed rival, including lower-emission plug-in hybrid systems.

Reporting by Naomi Tajitsu; Additional reporting by Chang-Ran Kim and Chris Gallagher; Editing by Christopher Cushing

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