Toyota Lifts Annual Profit Forecast on Weaker Yen Despite Q1 Decline

Toyota Motor Corp. on Tuesday boosted its annual operating profit forecast by 13%, primarily due to the benefits of a weaker Japanese yen. The upgrade comes despite the automaker reporting a 9% decline in its first-quarter profit amid persistent sales weakness in the key Chinese market.

Upgraded Outlook and Q1 Performance

The world's largest automaker now expects an operating profit of 3.4 trillion yen ($21.6 billion) for the fiscal year ending in March, an increase from its previous forecast of 3 trillion yen. In a statement, Toyota attributed the revision to "revised foreign exchange assumptions" and improved marketing efforts, including the establishment of new logistics routes to the Middle East.

However, for the April-June first quarter, operating profit fell 9% to 1.06 trillion yen. This result missed the median forecast of 1.11 trillion yen from eight analysts surveyed by LSEG, marking the company's fifth straight quarter of declining earnings.

Shareholder Returns and Market Reaction

Alongside its earnings report, Toyota announced a significant capital return program, including a plan to buy back up to 1 trillion yen in shares, which represents as much as 4.22% of its outstanding stock. The company also intends to cancel 200 million shares.

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Despite the upbeat forecast and the share buyback announcement, Toyota's shares fell 2.3% in afternoon trading in Tokyo. The market's reaction suggests investors may be weighing the underlying operational challenges, particularly in China, more heavily than the currency-driven profit upgrade.

Regional Sales and Production Headwinds

Toyota raised its annual vehicle shipment target by 100,000 units to 9.7 million, citing solid demand in North America and Europe, which were among the few markets to show sales growth during the quarter.

Notably, the company's revised annual outlook does not yet account for the potential impact of a recent earthquake in Japan's Kyushu region. The event has already disrupted supplier production and forced Toyota to temporarily halt operations at four domestic plants, representing a potential future headwind.