Toyota Motor Corporation (TM) on Q4 2023 Results - Earnings Call Transcript
Ellie Gibbs: Ladies and gentlemen, thank you very much for coming today. We would now like to start the financial results meeting for the year ended March 2023. My name is Ellie from Public Relations, and I will be the MC for today's meeting. Before we announce the financial results, Koji Sato, our President, has a few words to mention. Mr. Sato, please. Koji Sato: I am Koji Sato. Before announcing our financial results, I would like to explain the current situation regarding the Daihatsu procedure realities issue, which was announced on April 28. Since the announcement, we have had an independent third-party review entity conductor retest of those vehicles concerned. It has once again been confirmed that the vehicles concerned present no quality or safety issues. Based on the results of the retest and as to consulting with the related authorities, we have resumed shipments of the Toyota brand vehicles to Malaysia, Mexico and Ecuador. As for Thailand and Middle Eastern countries, we will continue to consult with the related authorities. The day before yesterday, Chairman, Toyoda visited Thailand to explain to our customers and stakeholders what had happened and to convey to them that the vehicles were safe and that our entire corporate group was committed to working to prevent this type of misconduct from ever happening again. Daihatsu and Toyota are confirming the fact from various perspectives to prevent a recurrence. Toyota is a company in which all members always stop when a problem occurs. It pursues a root cause of problems by going and seeing the location of process where the problem exists, mix improvements and works to prevent recurrences. We will continue to investigate the root cause, believing that it is important to change the environment in which such misconduct occurs. We will keep you informed as and when progress is made. Ellie Gibbs: Thank you. Now we would like to call upon Yoichi Miyazaki, the Executive Vice President and Chief Financial Officer, to explain about the financial results. Yoichi Miyazaki: I'm Miyazaki, the CFO, and this is the first time I take the coding, this title, I hope you bear with me. Before sharing you the financial results, we would like to express our heart felt appreciation to our customers around the world who choose as well as our shareholders, our dealers and suppliers and all other stakeholders who support us in daily activity. Thank you so very kindly. So let me provide a summary of the financial performance of the fiscal year ending March 2023. While we experienced production constraints due to tight semiconductor supplies, natural disasters and COVID-19, et cetera, dealers and suppliers as well as production sites have all worked hard in order to deliver as many cars as possible to our customers. In spite of our actual operating income decreasing compared to the last fiscal year due to the impact of such things as soaring material prices, our results exceeded the previous forecast due to our continuous efforts to improve our profit structure. For the forecast for the next fiscal year, we expect production volume of 10.1 million and sales volume increased in all regions as a result of such things as improvements in semiconductor supply and the efforts of production sites. We will continue to both advance our activities towards carbon neutrality and improve our product structure. Also without slowing down our growth investments, we will promote activities to change the future of our cars. In terms of return to shareholders, in order to reward our long-term shareholders, we have a new dividend policy to increase dividends stably and continuously. We have placed more focus on dividends for our shareholder returns, and the year-end dividend will be JPY35 per share, which is an increase of JPY7 compared to the previous fiscal year. The total dividend will be JPY60 per share, which is an increase of JPY8 from the previous fiscal year. As for the share repurchases under our policy to conduct flexibly taking into account our share price levels, et cetera for our year-end repurchases, we will proceed with a maximum of JPY150 billion, which is equivalent to our interim repurchases. Now then let me explain the summary of our performances for the fiscal year ended March 2023. Consolidated vehicle sales for the period was at 8,822,000 units, which was 107.2% of such sales over the previous fiscal year. Toyota and Lexus brand vehicle sales was at 9,610,000 units, which was 101% of such sales in the previous fiscal year. So as for the vehicles sales by region, we saw an increase in all regions compared to the previous fiscal year. Also, the ratio of electrified vehicles became 29.6%. Consolidated financial results were sales revenue of JPY37,154.2 billion, operating income of JPY2,725 billion. Income before income taxes JPY3,668.7 billion and net income of JPY2,451.3 billion. Now I'd like to explain the factors which impacted operating income year-on-year. First, the effect of foreign exchange rates increased operating income by JPY1,280 billion. Second, cost reduction, of course, decreased operating income by JPY1,290 billion, the JPY1,545 billion impact of soaring material prices includes JPY500 billion for activities aimed at strengthening the structure of the entire supply chain in addition to fluctuations in market conditions for materials. Third, marketing efforts increased operating income by JPY680 billion. Fourth, increase in expenses decreased operating income by JPY525 billion. Lastly, we also incurred a negative impact of JPY415.6 billion largely due to the swap valuation losses and the cost to terminate our production in Russia. As a result, excluding the overall impact of foreign exchange rates, swap valuation gains and losses and other factors, operating income decreased by JPY1,135 billion year-on-year. Now let me explain the operating income for each region. Japan increased by JPY477 billion year-on-year due to the effects of foreign exchange rates despite the negative effect from soaring material prices. North America decreased by JPY457.8 billion year-on-year due to soaring material prices. Going forward, Europe also decreased by JPY115 billion year-on-year due to soaring material prices and the cost to terminate our production in Russia despite the positive effect from our marketing efforts. Asia increased by JPY55.7 billion year-on-year due to the effect of foreign exchange rates and increase in sales volume. Other regions increased by JPY36.7 billion year-on-year. In the next slide, let me explain about our business in China as well as our financial service business. As for our business in China, while the operating income of consolidated subsidiaries decreased year-on-year, mainly due to the impact of fluctuations in foreign exchange rates and a decrease in sales volume, our share of profit of investments accounted for using the equity method increased year-on-year, mainly due to cost reduction efforts. Regarding the Financial Services business, operating income for the fiscal year increased year-on-year due to the impact of fluctuations in foreign exchange rates. Next, I'd like to explain about our return to shareholders. In order to reward our long-term shareholders, we have eliminated our conventional guideline of consolidated dividend payout ratio of 30%. Instead, we have revised our policy to increase dividends steadily and continuously. So as we have more focus on dividends. The year-end dividend for the current fiscal year will be JPY35 per share, which is an increase of JPY7 compared to the previous fiscal year. Together with the interim dividend of JPY25, the total full year dividends for this fiscal year are JPY60 per share, which is an increase of JPY8 from the previous fiscal year. Previously, we have conducted share repurchases based on factors such as investment in growth, dividend levels and cash on hand. However, we have revised our policy to conduct flexibly taking into account our share price levels, et cetera. For year-end repurchases, considering the current share price level, we set aside JPY150 billion as the maximum limit of year-end repurchase, which is equivalent to our interim. Next, I will explain the forecast for the fiscal year ended March 31, 2024. First of all, I will explain the production volume forecast for the Toyota and Lexus brands. We expect 10.1 million units, which is 110.6% of the previous fiscal year. The reason behind the increase in production forecast for the previous fiscal year is as follows. We have been working on examination of alternatives regarding them in light of supply risks in the future as well as on promoting improvements aimed at improving operating rates at factories. Since March, we have been able to continue high level production while prioritizing safety and quality. At sales sites in each region, the production volume still cannot keep up with customer demand. So we will continue to promote improvements together with our suppliers in order to further increase the production volume. We expect consolidated vehicle sales of 9,600,000 units, which is 108.8% compared to the previous fiscal year. As the semiconductor supply and demand has improved, we expect growth in all regions. As for Toyota and Lexus brand vehicle sales, we expect 10,400,000 units, which is 108.2% compared to the previous fiscal year. We expect electrified vehicle sales of 3,843,000 units, which is 134.9% compared to the previous fiscal year, and the electrified vehicles ratio is expected to be 37.0%. Next, I will explain the forecast for the fiscal year ending March 31, 2024. We have adopted the full year foreign exchange rate assumption of JPY125 per U.S. dollar and JPY135 per euro. Based on this, our forecast for full year consolidated financial performance are: sales revenue of JPY38 trillion, operating income of JPY3 trillion income before income taxes of JPY3,690 billion and net income of JPY2,580 billion. Next, I would like to explain the factors that may impact operating income. First, the effects of foreign exchange rates will decrease the operating income by JPY875 billion. Second, the cost reduction efforts are expected to increase profit by JPY360 billion, while the impact of decreasing material is expected to be JPY510 billion, resulting in a total decrease JPY150 billion. Third, the effects of marketing activities will increase the operating income by JPY1,285 billion due to an increase in sales volume and an improvement in product mix, led by improved semiconductor supply and demand, while other expenses are expected to decrease by JPY260 billion. Compared with the pre-closed fiscal year ended March 31, 2020, we became able to offset the impact of soaring material cost to GPS cost reductions and marketing efforts as a result of our long-standing product centered and region centered approach. We have also established a foundation for steadily increasing growth investments. We live in an era where there is no right answer and the future is uncertain. So we will always keep our antennas up and carefully manage risks in preparation for changes in the business environment. This brings us to the end of our presentation. Thank you very much. Ellie Gibbs: Thank you. We'd now like to ask our President, Koji Sato, to take the floor again. Koji Sato: Once again, I am Koji Sato. As Miyazaki-san just mentioned, despite the severe business environment, including soaring material prices, we were able to secure an operating profit of JPY2.7 trillion in the previous fiscal year. Our new management team assumed the reins on April 1. However, the financial results figures for the previous fiscal year were based on the 14 years of former President, Akio Toyoda's efforts, making me once again keenly aware that our change in management took place while Toyota was being managed at top speed. As such, our new management team will be able to focus on strategic initiatives in growth areas based on this current foundation. When Chairman, Toyoda took office as President, he said growth is about being able to continuously change ourselves in response to ever-changing needs of customers and society. And I believe that his 14 years as President embodied exactly that. Now that he is Chairman, he is in a position to support our new management team, and we will implement a new form of team management with the Chairman and President working simultaneously and according to an optimal division of rules at any given time. Our team will take advantage of this environment to promote speedy management. With that in mind, I would like to once again talk about our future management. I believe that the growth Toyota should aim for going forward is growth that creates a future in which the automobile industry transforms itself into a mobility industry through enhancing its added value as it works in cooperation with many other industries. The foundation for this is carbon neutrality. Toyota aims to reduce new vehicle CO2 emissions by more than 50% globally by 2035. To achieve this, we will continue to provide regionally optimal solutions at an accelerated pace without wavering from our multi-pathway approach. When it comes to battery electric vehicles or BEVs, which are especially rapidly progressing, we have set a pace of selling 1.5 million units by 2026 as our base volume, and we plan to launch 10 models ranging from luxury vehicles to compacts and commercial vehicles, mainly in the United States and China. Regarding the battery supply, we will seek to speedily secure the necessary volume by increasing our in-house production capacity and collaborating with our partners. Our new model scheduled for launch in 2026 will be built on 3 new platforms, the body and chassis, the electronic platform and the software platform. They will all be renewed as we aim to achieve mobility by the way of renewed vehicle packaging with a rational structure that is unique to BEVs. From now on, with a new dedicated organization, BEV factory will lead the initiatives and the initiatives will be accelerated. We would like to present concept for vehicles of such at the Japan Mobility Show this autumn. At the same time, as our BEV initiatives, we will also accelerate our efforts to realize the hydrogen society. We will advance our projects in the commercial domain, especially in Europe and China where hydrogen consumption is particularly high centered on fuel cell electric vehicles. Furthermore, we will focus on the use of hydrogen energy for personal mobility and on the cycle of producing, transporting and using hydrogen and we will conduct activities for the development of social infrastructure, including through social implementation in Thailand. To actively promote these initiatives, we will also increase our immediate earning power especially in Asia and emerging markets, which are expected to grow 30% or more by 2030. We will strengthen our earnings base by focusing on hybrid electric vehicles to capture market growth. To transform automobiles into our mobility industry, we will further increase our current approximately JPY3 trillion in R&D expenditures and capital investment while increasing the ratio of future investment to achieve sustainable growth. Thank you for your kind attention. A - Ellie Gibbs: Next, we'll have a question-and-answer session. So please do wait for a few seconds while we set up the stage. Thank you. Now, we would like to start the Q&A session. Could we ask the respondents to the questions to please take the stage. Let me introduce the members on the stage, President, Koji Sato; Executive Vice President, Chief Technology Officer, Hiroki Nakajima; Executive Vice President, Chief Financial Officer, Yoichi Miyazaki; Chief Communication Officer, Jun Nagata; Chief Officer, Accounting Group, Masahiro Yamamoto. Please take your seat on the stage. Now then we are ready to take questions. If you have any questions, please raise your hand to indicate that you'll be asking a question and wait for the microphone. We'd like to give the opportunity to ask many people as possible, so we would like to restrict your questions to 2 questions each please. The third person -- the person in third row from the front, please. Ellie Gibbs: Thank you, Tanigawa-san. It is time to close the Q&A session. With this, we conclude the financial results meeting. Those on the stage, please stand up. Thank you very much for coming today. So off the stage. Thank you very much.
Toyota Motor Corporation's Earnings Report Analysis
- Missed EPS expectations: Toyota reported an EPS of $0.49, falling short of the anticipated $2.91.
- Exceeded revenue forecasts: The company posted revenue of approximately $72.99 billion, surpassing the expected $62.07 billion.
- Challenges and opportunities in the EV market: Despite lagging in the pure electric vehicle segment, Toyota's launch of the all-hybrid Camry highlights its commitment to vehicle electrification.
On Wednesday, May 15, 2024, Toyota Motor Corporation (NYSE:TM) disclosed its earnings before the market opened, revealing an earnings per share (EPS) of $0.49, which did not meet the anticipated $2.91. Despite this shortfall in EPS, the company managed to post revenue of approximately $72.99 billion, exceeding the expected $62.07 billion. This financial performance indicates a complex landscape for Toyota, as it navigates through challenges and opportunities in the automotive industry.
Toyota, a global leader in the automotive sector, is currently facing hurdles in the electric vehicle (EV) market. Michael Dunne, founder and CEO of Dunne Insights, pointed out in an interview with CNBC International TV that Toyota is "behind the game" in developing and marketing pure electric vehicles. This situation is particularly pressing as the competition intensifies, especially from Chinese manufacturers. This challenge is juxtaposed with Toyota's significant achievement in launching the ninth-generation Camry, which will be exclusively available as a hybrid model. This move underscores Toyota's commitment to electrification, despite the perceived lag in the pure EV segment.
The launch of the all-hybrid Camry at Toyota's Kentucky plant is a strategic step towards addressing the growing demand for electrified vehicles. Kerry Creech, the president of Toyota Kentucky, emphasized the importance of the facility's team members in reaching this milestone. Toyota's investment in the Kentucky plant over nearly four decades highlights its dedication to not only advancing vehicle electrification but also ensuring job stability in the U.S. This initiative reflects Toyota's broader environmental goals and its strategy to diversify its range of electrified vehicles.
Despite the challenges in the EV market, Toyota has seen a significant increase in profits, particularly from its hybrid vehicles. This surge in earnings demonstrates the company's ability to capitalize on the current demand for hybrid technology. However, Toyota has cautioned about a potential decline in profits due to issues related to its Asia-focused car brand, Daihatsu. This forecast suggests that while Toyota is making strides in certain areas, it must navigate through impending challenges to maintain its financial health and market position.
In summary, Toyota's recent financial performance and strategic initiatives reveal a company at a crossroads. While it faces challenges in the rapidly evolving EV market, its successful launch of the all-hybrid Camry and the financial gains from its hybrid vehicle sales highlight its strengths. Toyota's ongoing efforts to innovate and adapt to market demands, coupled with its commitment to sustainability and job stability, are crucial as it seeks to overcome obstacles and capitalize on new opportunities in the automotive industry.
Toyota Motor Corporation Quarterly Earnings Preview
- Earnings Expectations: Wall Street anticipates an EPS of 2.91 and revenue of $62.07 billion.
- Strategic Shifts: Toyota's focus on electric vehicles (EVs) and artificial intelligence (AI) positions it as a strong competitor in the automotive industry.
- Financial Metrics: Toyota's financials suggest it might be undervalued, with a P/E ratio of 9.22 and a P/S ratio of 0.93.
On Wednesday, May 15, 2024, Toyota Motor Corporation (NYSE:TM) is set to announce its quarterly earnings before the market opens, with Wall Street expecting an earnings per share (EPS) of 2.91 and revenue forecasted at around $62.07 billion. Toyota, a leading global automotive manufacturer, has been in the spotlight for its significant financial performance and strategic shifts towards electric vehicles (EVs) and artificial intelligence (AI). The company's focus on innovation and sustainability positions it as a strong competitor in the rapidly evolving automotive industry, particularly against EV market leaders like Tesla.
In its fiscal fourth quarter, Toyota reported a nearly doubled profit, driven by increased sales and higher margins, highlighting the rising demand for hybrid vehicles. This performance underscores Toyota's strength in the hybrid market, a segment that continues to attract consumers worldwide. However, the company has also signaled a cautious outlook for the coming year, expecting a decline in profits due to the repercussions of a scandal involving its Asia-focused car brand, Daihatsu. Despite these challenges, Toyota's commitment to expanding its EV and AI capabilities demonstrates its proactive approach to capturing growth in the burgeoning EV market.
Toyota's financial metrics reveal a company that is potentially undervalued, with a price-to-earnings (P/E) ratio of approximately 9.22 and a price-to-sales (P/S) ratio of about 0.93. These figures suggest that Toyota's stock might be reasonably priced in relation to its earnings and sales, respectively. Additionally, the enterprise value to sales (EV/Sales) ratio of roughly 1.53 and the enterprise value to operating cash flow (EV/OCF) ratio of approximately 16.42 provide insights into the company's valuation in comparison to its sales revenue and operating cash flow. With an earnings yield of around 10.84%, Toyota offers an attractive return on investment based on its current earnings.
The company's financial health is further evidenced by its debt-to-equity (D/E) ratio of about 1.07, indicating a balanced financing strategy that leverages both debt and equity. The current ratio of approximately 1.19 shows Toyota's capability to meet its short-term liabilities with its short-term assets, highlighting its financial stability. As Toyota navigates the challenges ahead, including its strategic investments in human capital and its multi-pathway strategy for powertrain technologies, its financial performance and strategic direction will be closely watched by investors and industry observers alike.
Top Battery Stocks to Watch in 2024 Amid EV Sector Challenges
Top Battery Stocks to Watch Amid EV Sector Challenges
In May 2024, amidst a challenging backdrop for battery stocks due to a slowdown in demand for electric vehicles (EVs) and a sell-off in battery stocks over the past year, InvestorPlace highlights three top battery stocks poised for potential growth. Despite the recent downturn, the long-term outlook for the battery sector remains positive, driven by the ongoing trend towards electrification and a resurgence in the lithium market, with prices of the shiny metal seeing double-digit gains this year.
Lithium Americas (NYSE:LAC) emerges as a standout opportunity in the lithium mining space, despite a roughly 30% decline in its stock year-to-date (YTD). The company is advancing its Thacker Pass Project in Northern Nevada, aiming for full production and expecting to recover $3.9 billion worth of lithium. With a $2.26 billion financing commitment from the U.S. Department of Energy and a $650 million investment from General Motors (NYSE:GM), Lithium Americas is well-positioned for growth.
Solid Power (NASDAQ:SLDP) is highlighted as a promising player in the solid-state battery market, a technology that could revolutionize the EV sector with its superior charging speeds, safety, and energy density. Backed by automotive giants BMW (OTCMKTS:BMWYY) and Ford (NYSE:F), Solid Power has made significant progress, with its stock gaining 30% in the past six months.
Toyota (NYSE:TM) is recognized for its strategic approach to EVs and solid-state battery technology. The automotive giant's stock has surged nearly 27%, outperforming the S&P 500's 7.5% return. Toyota plans to invest $13.6 billion in solid-state batteries, targeting a 2027 release with features like 10-minute fast charging and ranges up to 750 miles. This investment aims to enhance vehicle range and efficiency while reducing costs by 50% by the late 2020s, positioning Toyota as a key player in the future of electrification.
These companies represent strategic investments in the evolving battery and EV markets, offering potential for significant returns as the sector navigates its current challenges and capitalizes on long-term growth trends.
Toyota Motor Corporation's Resilience in Market Fluctuations
Toyota Motor Corporation's Market Performance Amid Economic Fluctuations
Toyota Motor Corporation (TM:NYSE) recently saw its stock price fall by 1.63%, closing at $242.97. This drop was slightly more pronounced than the overall market downturn, with the S&P 500, Dow, and Nasdaq experiencing losses of 1.46%, 1.24%, and 1.63%, respectively. Despite this short-term setback, Toyota's shares have seen a notable increase of 6.94% over the past month, significantly outpacing the Auto-Tires-Trucks sector's modest gain of 0.46% and the S&P 500's 1.6% rise. This performance indicates a strong position within the market, especially when considering the broader economic context.
Looking ahead, investors are closely monitoring Toyota's financial health, particularly with its upcoming earnings release. The company is anticipated to report an earnings per share (EPS) of $2.91, which would mark a 5.21% decrease from the same quarter last year. Additionally, revenue is expected to hit $67.21 billion, reflecting an 8.28% drop from the previous year's quarter. These projections suggest a challenging period for Toyota, yet the company's stock remains a strong buy according to analysts, with a Zacks Rank of #1 (Strong Buy). This optimism is likely rooted in Toyota's consistent performance and its ability to navigate market fluctuations.
From a valuation standpoint, Toyota's Forward Price-to-Earnings (P/E) ratio of 10.66 positions it at a premium compared to the industry average of 6.22. This higher valuation could be attributed to the company's robust fundamentals and growth prospects, as evidenced by its Price/Earnings to Growth (PEG) ratio of 0.37, which is in line with the industry average. These metrics suggest that investors are willing to pay a higher price for Toyota's shares, expecting future earnings growth.
The broader Automotive - Foreign industry, where Toyota is a key player, enjoys a favorable position with a Zacks Industry Rank of 74, placing it in the top 30% of all industries. This ranking reflects the industry's strong performance and the positive outlook analysts have on it. Toyota's financial ratios further underscore its market position. With a P/E ratio of approximately 10.96 and a Price-to-Sales (P/S) ratio of about 1.17, Toyota appears to be undervalued relative to its earnings and reasonably valued based on its sales. The company's enterprise value to sales (EV/Sales) ratio of roughly 1.77 and its enterprise value to operating cash flow (EV/OCF) ratio of approximately 19.79 highlight a moderate market valuation in relation to its sales revenue and operating cash flow, respectively.
Moreover, Toyota's earnings yield of around 9.13% presents an attractive investment opportunity from an earnings perspective. The company's debt-to-equity (D/E) ratio of about 1.04 indicates a balanced approach to leveraging debt and equity in financing its operations, while the current ratio of approximately 1.18 suggests a healthy liquidity position, capable of covering short-term obligations. These financial health indicators, combined with Toyota's market performance and analyst expectations, paint a picture of a company that, despite facing short-term challenges, is well-positioned for future growth and profitability.
