February 7, 2019 / 4:25 AM / 12 days ago

Subaru sees profit at six-year low on stoppage but turnaround hopes lift shares

TOKYO (Reuters) - Japan’s Subaru Corp cut its full-year earnings forecast by 16 percent to flag its weakest profit in six years due to a production stoppage but its shares climbed 6 percent as some investors were optimistic the worst was over for the automaker.

The logo of Subaru Corp. is pictured at the 45th Tokyo Motor Show in Tokyo, Japan October 25, 2017. REUTERS/Toru Hanai

The maker of Legacy sedans and Forester SUV crossovers also reported a better than expected third-quarter operating profit and rising sales in the United States, its biggest market, helping shore up sentiment after months of negative news on recalls, stoppage and inspection cheating.

Subaru halted production last month at its sole car factory in Japan for nearly two weeks, holding up roughly 60 percent of its global output after it found a suspected defect in a power steering component. It expects production delays at the Japan plant to be cleared by end-March.

Japan’s sixth largest automaker, in its second profit downgrade in three months, said it now expects a full-year operating profit of 185 billion yen ($1.68 billion), roughly half its profit from the year just ended, from a previously expected 220 billion yen.

That will be its weakest profit since the year ended March 2013.

But Subaru shares rallied to close 6 percent higher after the announcement. They slumped more than 30 percent last year as the company was hit by a series of production issues, ranging from faulty components to inspection do-overs which have stemmed from improper final tests on cars sold in the domestic market.

Subaru CFO Toshiaki Okada said the latest production delay meant that the automaker would miss its global annual sales target of 1 million cars, a key goal as the company has expanded aggressively in the past few years, particularly in the United States.

“The production stoppage will have an impact as output will not be able to keep up with demand,” he told a briefing.

The automaker, which counts Toyota Motor Corp as its top shareholder, now expects to sell 996,000 vehicles globally in the year to March, down from a previous forecast of 1.04 million and snapping a six-year run of strong sales. The latest production halt would cut output by around 30,000 vehicles, Okada said.

For a link to an interactive graphic on Subaru's operating profit and global sales, click on tmsnrt.rs/2Ru9Edl

For the October-December quarter, before the latest production woes, Subaru posted a profit of 98.7 billion yen, up nearly 5 percent from 94.2 billion yen in the same period a year earlier and exceeding the 93.57 billion yen average of 10 analyst estimates, according to Refinitiv data.

During the quarter, global vehicle sales rose to around 280,000 units, up slightly from 270,600 units last year due to solid demand for new versions of its Forester and Ascent SUV models. In the United States, sales came in around 193,700 units, up from 175,800 units a year ago.

Reporting by Naomi Tajitsu; Editing by Muralikumar Anantharaman

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