Toyota Puts the Brakes on Outlook

by Jim Woods | December 9, 2011 2:53 pm

Toyota TMNatural disasters certainly took their toll on a number of companies this year, but perhaps none more so than Japanese auto giant Toyota (NYSE:TM[1]). On Friday, the company announced it had slashed its fiscal year 2011 profit forecast by more than half to 180 billion yen ($2.3 billion).

Toyota said its outlook for the period ending March 31, 2012, is going to fall drastically below its fiscal 2011 profit of 408.1 billion yen ($5.25 billion). Sales also are expected to be lower, as the company forecasts the metric to be about 18.2 trillion yen ($234 billion), down from 19 trillion yen ($244.5 billion) a year ago. The key operating profit metric is expected to decline a whopping 57% to 200 billion yen.

The two culprits cited as an explanation for the detuned fiscal engine were the strength of the Japanese yen and the disruption in the supply lines[2] out of Thailand. Toyota said the currency’s strength cut 190 billion yen off its fiscal year profit forecast, while the worst floods in Thailand in more than 50 years caused a downward revision of 120 billion yen.

Toyota has a production facility in Thailand that was adversely affected by the floods, but it’s not the only automaker to be hurt by the rising Thai waters. Honda (NYSE:HMC[3]) was forced to suspend production at its automobile plant in Ayutthaya, Thailand, due to flood waters. Ford (NYSE:F[4]) and General Motors (NYSE:GM[5]) have production facilities in Thailand, although both have seen little or no flood impact on their respective facilities.

The combination of a strong yen and the Thai floods is likely to dethrone Toyota as the world’s biggest automaker. General Motors and Volkswagen (PINK:VLKAY[6]) are set to swerve into Toyota’s No. 1 lane, as the Japanese company suffered a slowdown earlier this year after the devastating earthquake/tsunami that struck the nation in March.

In terms of share price performance, Toyota has managed to show a lot more horsepower than its rivals. Although the stock is down 15.5% year-to-date, that performance is much better than its peers. So far this year, HMC shares have shed 22.7%, Ford shares are down 37.7%, and GM’s share engine has blown, down 43.4% in 2011.

Given the new lowered forecast for Toyota, you have to wonder how long the company’s share price can hold up. Investors with a penchant for auto stocks might be well served to keep this in mind as they consider which road to travel next.

As of this writing, Jim Woods did not hold a position in any of the aforementioned stocks.

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