Toyota Braces for Fifth Consecutive Profit Decline as Quake Disruptions Add to Headwinds

Toyota is forecast to report its fifth consecutive quarterly decline in operating profit this week, as the automaker contends with weakening global sales and rising costs. The outlook is further clouded by recent production shutdowns at domestic plants following a major earthquake in southern Japan.

Weakening Sales and Rising Costs

The world's largest automaker is expected to post an operating profit of 1.11 trillion yen ($7.04 billion) for the April-June quarter, a 5% decrease from the same period a year earlier, according to the median estimate of eight analysts surveyed by LSEG. Analysts attribute the expected drop to a combination of lower sales volumes and persistent cost pressures.

Global sales for the Toyota and Lexus brands fell 3% to just over 2.5 million vehicles during the quarter. Key factors weighing on performance include:

• A 28% sales decline in China.
• A one-third drop in sales in the Middle East.
• A 16% decrease in Oceania and a 5% drop in Central and South America.

Christopher Richter, an autos analyst at CLSA, told Reuters that the first quarter "could be a bit tougher than expected," citing weaker-than-anticipated sales volumes. Analysts also noted that the conflict in the Middle East has inflated prices for materials like aluminum and disrupted vehicle shipments.

Earthquake Impact and Production Halts

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Investors are closely monitoring the fallout from a deadly earthquake that struck Japan's Kyushu island last week, disrupting key suppliers. In response, Toyota suspended production at three plants in the region through Wednesday and halted operations at another facility in central Japan through Friday.

The uncertainty was underscored when supplier Aisin stated it could not provide a timeline for resuming operations at a damaged plant near the quake's epicenter. These disruptions add a new layer of risk to Toyota's full-year outlook.

Investor Outlook

Looking ahead, the market will be focused on whether Toyota maintains its full-year operating profit forecast of 3 trillion yen. The combination of higher material costs, slowing sales in key markets, and the new earthquake-related production losses presents significant headwinds.

Analysts will also seek updates on the U.S. market, where sales have been affected by the model transition for the popular RAV4 sport utility vehicle. Any guidance on when sales of the redesigned model are expected to accelerate will be a key point of interest for investors.