Toyota Sales Make Big Comeback – Will its Stock Follow Along?
After suffering more hits than a crash test dummy over the past five years, Toyota Motors (TM) is beginning to show signs it is back on track. May sales in the U.S. were 87% higher than a year ago.
That’s a nice shift for the Japanese automaker. In a timeline they’d probably love to forget, Toyota’s first pothole hit with the sudden acceleration recall that broke in 2009 and bled into 2010, which was already going to be a rough year to sell cars and trucks given the global recession. Then just as global economies and auto sales were revving back up, Toyota’s operations suffered major dislocations in the wake of Japan’s devastating March 2011 earthquake and tsunami. Forty-five percent of Toyota’s production is based in Japan. Later in 2011 Toyota took another hit when massive flooding in Thailand forced key suppliers off line.
That succession of events pushed Toyota from the top spot among the world’s auto manufacturers down to No. 3, behind General Motors (GM) and Volkswagen.
Add it all up, and as the graph below shows, from the end of 2008 through 2011 Toyota shareholders have had an unsatisfying ride to nowhere.
Global production in April was 125% higher than a year ago. That continues a strong trend of increasing production. December 2011 production was 10.7% higher, January saw a 27.8% uptick and March production rose 59.6% from the prior year. Sales are following in step. Toyota has forecast a 17.6% sales increase for its 2013 fiscal year that ends in March 2013.
The firm expects that if the yen stays in its current trading range of about 80 yen to the dollar, it expects operating income to jump 180% in FY 2013:
Morningstar analyst Dave Whiston recently said he thinks there will be “a very positive earnings surprise” from Toyota later on this calendar year. That would end a near three-year stretch of earnings pretty much stuck in neutral:
Toyota’s share price has begun to reflect the turnaround:
But as measured by price to book value, Toyota still trades more than 50% below its pre-crises levels:
The rebound in U.S. auto sales is a nice tailwind for all auto manufacturers.
It’s also the anchor for Toyota’s most important region; North American sales represent 28% of sales for Toyota. Japan sales account for 26% of business. Given that the average age of cars on the road in the U.S. is now a record 10.8 years -- 20% higher than the average a decade earlier -- there still seems to be room for continued growth, absent a Europe-induced recession. And speaking of Europe, that market represents just 11% of Toyota sales, somewhat mitigating the impact of a sales slowdown there amid spreading economic woes.
A key piece of Toyota’s turnaround plan is focused on emerging markets. Toyota EVP Yukitoshi Funo recently said the firm’s goal is for emerging markets to represent 50% of global sales by 2015, up from the current 40% level today. That effort will focus on fuel-efficient compact cars. Toyota aims to sell 1 million of its small fry into emerging markets by 2015, which represents more than one-third the firm’s total sales into Asia (ex-Japan) and Central and South America for its just-completed 2012 fiscal year (TM operates on a April 1 FY calendar).
The Prius is another key piece of the puzzle. Automotive News reports the once fringe offering was the third-best selling car in the world in the first quarter of 2012, behind Toyota’s Corolla and the Ford Focus. Sending eight new models onto the showroom has helped push volume.
The strength of the Japanese yen in calendar year 2011 was a major roadblock. The company says when the value of the Yen vs. the U.S. dollar falls below 80, it loses money on its compact sales. And during the height of last summer’s global fears, the yen dropped from a pre-earthquake level of 83 to the U.S. dollar, to 76.
As fears of a global recession abated, the yen-to-dollar eased back to 83 this past spring. But in the past month, as fears of a yet another global slowdown have picked up, the yen has edged below 80 once again. Toyota’s forecast for its current fiscal year is based on an 80 exchange rate. That’s the potential pothole in Toyota’s road to recovery to keep a lookout for.
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