Toyota Profit Rose for the First Time in Six Quarters, and It Raised Its Full-Year Outlook

Toyota Motor's operating profit jumped 34% in the September quarter, its first increase in six quarters, and the automaker raised its full-year profit forecast.

Operating profit reached 1.13 trillion yen for the July-September quarter, Toyota reported on Thursday in Tokyo. That beat the 992 billion yen median forecast of nine analysts surveyed by LSEG, according to Reuters.

Sales revenues rose to 13.44 trillion yen from 12.38 trillion yen a year earlier, Toyota's results presentation showed. The operating margin widened to 8.4% from 6.8%.

Currency did much of the lifting

Toyota's own analysis shows foreign exchange adding 340 billion yen to quarterly operating profit. The dollar averaged 159 yen in the quarter, against 147 yen a year earlier.

Underneath the currency move, the quarter was close to flat. Excluding exchange-rate effects and swap valuation changes, operating profit rose by just 10 billion yen, according to Toyota's analysis.

Materials prices subtracted 325 billion yen, including a 100 billion yen impact the company ties to the Middle East situation. Cost-reduction efforts added back 70 billion yen.

Hybrids carried the sales mix

Toyota and Lexus retail sales fell 4% to just over 2.5 million vehicles in the quarter, Toyota's presentation showed. A 22% decline in China and a one-third drop in the Middle East drove the decrease, according to Reuters.

Electrified vehicles - hybrids, plug-in hybrids and battery-electric models - made up 55.9% of those sales, up from 46.0% a year earlier. Hybrid sales alone rose 10% to about 1.21 million vehicles.

"With gasoline prices rising, there is demand for more fuel-efficient hybrids," said Yuya Takahashi, an analyst at Marusan Securities, in Reuters' preview of the results. "The key is how many of those more profitable hybrids are being sold."

In North America, electrified vehicle sales jumped more than 30% to almost 430,000 vehicles, Reuters reported. Overall U.S. sales volumes there rose less than 1%.

Net income moved the other way

The operating gain did not reach the bottom line. Net income attributable to Toyota fell to 759.4 billion yen from 932.0 billion yen a year earlier.

The gap sits in other income - a line covering valuation and other non-operating items - which swung to a loss of 137.1 billion yen from a gain of 386.4 billion yen. Income before taxes fell to 990.5 billion yen from about 1.23 trillion yen.

A bigger profit forecast on a smaller revenue target

Toyota now expects operating income of 3.9 trillion yen for the year ending in March, up from its previous forecast of 3.4 trillion yen. The new forecast is also slightly above the 3.77 trillion yen the company earned last year.

The company trimmed its revenue forecast to 53.5 trillion yen from 54.0 trillion yen, while raising its net income forecast to 3.57 trillion yen from 3.25 trillion yen. Its planning rate now assumes 157 yen to the dollar, against 160 yen previously.

Shareholder returns rose with the forecast. The interim dividend increased to 50 yen a share from 45 yen, and the full-year repurchase authorization totals 1.3 trillion yen after a 300 billion yen increase, Toyota said.

Toyota also plans to cancel an additional one billion treasury shares. That would bring planned cancellations for the fiscal year to 1.2 billion shares.

The market had a head start

Toyota shares were up 7.5% in Tokyo morning trade on Thursday, Dow Jones Newswires reported, in a broad post-midterm rally led by autos. That move came hours before the results were disclosed at 1:55 p.m. Tokyo time, so it is not a verdict on the print.

The first full market reaction arrives with Thursday's U.S. session. Toyota's U.S.-listed shares had not yet traded on the results when this article was published.

What remains unknown

Whether materials costs keep subtracting at this pace is not settled. Toyota's bridge assigns 325 billion yen of the quarter's drag to materials prices, and its first-quarter briefing flagged rising materials prices as a continuing second-half pressure.

China's trajectory is also open. Competition from domestic electric-vehicle brands is challenging Toyota's gasoline and hybrid lineup in the world's largest auto market, and the quarter's 22% sales decline has no company forecast attached to it.

The valuation swings below the operating line remain unpredictable. They turned a 34% operating-profit rise into a net-income decline this quarter, and Toyota does not forecast them separately.

Tariff costs are moving but not fully quantified for the second half. Toyota cited reduced tariff-related costs among the reasons for the forecast raise, after projecting a 1.38 trillion yen annual impact at the start of the fiscal year.

What to watch next

Watch Thursday's U.S. session for the first settled reaction in Toyota's U.S.-listed shares, and Friday's Tokyo close for the home market's full verdict.

Watch the yen against Toyota's 157-yen planning rate. The forecast's currency cushion shrinks if the yen strengthens from the 159 yen the dollar averaged in the September quarter.

Watch monthly China sales and the third-quarter print, due early next year. The outlook raise leans on hybrids offsetting volume losses; both releases test that mix directly.