Toyota Motor Corporation (TM) on Q3 2021 Results - Earnings Call Transcript
Operator: Thank you for taking time out of your busy schedule to attend today's press briefing. We will now like to begin the FY 2021 Third Quarter Financial Results Press Briefing. I would like to introduce our participants today: Operating Officer -- Jun Nagata; Operating Officer; and CFO, Kenta Kon. Now, Mr. Kon will provide the explanation for the financial results of Q3. Kenta Kon: Hello, everyone. Thank you for joining us today. I am Kenta Kon. First and foremost, the battle against COVID-19 is still continuing and I would like to extend my sincere gratitude to the medical workers and all of you who support our daily lives. We also would like to express our heartfelt appreciation to our customers around the world who choose us, as well as our shareholders, dealers and suppliers who support us. A - Unidentified Company Representative: We would now like to receive questions and provide responses. Mr. Chiba from Asahi Newspapers. . Mr. Chiba, your question please. Unidentified Analyst: This is Chiba speaking from Asahi Newspapers. Regarding about the change or revision in the information, the reasons why your revenue has increased and why you have strengthened your company structure, I would like to hear further detailed explanation. Those will be my two questions. And starting with the three months in the quarter, the per region income North America and Japan and Asia, the operating income margin has improved. So what will be the factors of why you have made improvements in the operating income margin? Per market would you be able to explain to me in more detail? This will be my first question. Going on to my second question. For your operating income the revision that you have made for year-on-year comparison you have to – made an improvement in the – with the cost reduction ¥185 billion. So how to understand this number? I think variable cost is included here too. On a year-on-year comparison, probably it will be on the same level. And cost reduction efforts what kind of improvements have you made this quarter and how was that reflected in this number? And based on that for the third quarter financial results, can you provide your assessment and appraisals? Kenta Kon: Thank you for your question. So myself Kon, would like to explain regarding the financial results. For the revisions the factors why the revenues has been – income has been increasing. So per three months, Japan, Asia and North America, the operating income margin has improved. So you asked about the factors behind this. For the three-month geographic operating income slide is being shown now. And as Chiba-san has mentioned each of these regions in the past three months, we have been able to increase the income. Operating income margin also you can see in parenthesis: in Japan 12.3%; North America 6.8%, so an improvement from the previous year. And regarding Japan for the factors, the largest factor behind this is the impact from sales. About ¥150 billion positive impact has been seen. And for North America the situation is relatively similar. Sales side positive impacts, including volume model mix effects are seen here. Each region including Asia will have a similar story. For Asia inside this region China and also Southeast Asia -- South Asia is included. And for the increase of ¥70 billion in income mainly China and ASEAN countries will account for half respectively. And for China, especially, the sales impact with the increase in sales volume with the price revision also improvement in the product mix has been performing well. Looking at each of the markets those would be the main factors. Unidentified Analyst: Thank you, very much. Just one point. North America, when you talked about midterm financial results, you said that incentives are starting to decrease. Is that situation continuing? If incentive is going down, what is the reason for that? Sorry, a follow-up question. Kenta Kon: Incentives, the first quarter and second quarter because, the volume went down, the total amount went down. But per unit, the decrease level was very low basically because the total number of units went down. The whole amount did decrease. However, in the third quarter, regarding North America, we see the volume going up. So, as total, there is not much of a decrease. Rather, per unit, we continue at low level. That is the current situation. North America, the reason -- the main reason are the number of units and the model mix, which I mean, SUV ratio compared to the past, we have a high ratio. That is the impact. Also, the financial services, TMCC financial company in North America, currently North America used car values, the price is high. So the financial business in North America a few years ago, Plano in our headquarter in North America, automotive and financial business was integrated. So, we've been working on collaboration with the automotive business. We have enhanced the communication and ties. I think that is another reason. Also, the lease residual value we have been reviewing it in a conservative way, in order to keep our sound asset valuation. And also, regarding the credits, after the financial crisis, we have been having a clear view. So the asset has become much healthier and we have continued our efforts. And with that used car price, at a good situation now, the residual value and also bad debt situation is becoming better. With that, I think we are able to increase our profit. That is all. Thank you. Unidentified Company Representative: Thank you. Thank you, very much Mr. Chiba. Going on to the next question, from Yomiuri Newspapers, Katori-san. Mr. Katori, please revert now, switch the screen when you see yourself on the screen. Please start with your question. We’re now searching the screen. Unidentified Analyst: This is Katori speaking from Yomiuri Newspaper. My first question. So, again on the per region results for China, looking at the January figure, there's about an improvement of 30%, but why is this so strong? I'd like to know further in detail about the improvement in China. And another question is, you have made a second revision on the numbers this time. And in spring, you started with a reduction in production volume and up to the second revision of the forecast you have done various restructurings on the structure and also the way of work. I think various initiatives have been taken by the company. So, for the areas other than sales volume, do you have any positive factors to make this revision? Kenta Kon: Thank you. So I'll start with your question regarding China. The reason why it is in an increase. So, like Katori-san has mentioned, we can see an increase of 30% in the sales and you could have seen the operating income situation for the FY 2021 third quarter. And looking at each model the new model effects are being seen. The new model launches like Camry Corolla and Levin; also RAV4, and Wildlander which is a sister model, those new models that have been released is received positively from the customers and we have been able to improve the sales there. Also for Lexus ES, RX, NX, the globally mass-producing Lexus models have been accepted very positively from the customers as well. Of course, this is because of the lean inventory and lean incentives that have been achieved by strong efforts. So, we can't say that it's a simple result of new model launches. But looking at the used car market also, the residual value of Toyota vehicles or the assessment has become very high. That is now becoming more a general trend in the Chinese market. And so when the customers repurchase a new car their burden and the payment, there will be advantages on selecting our cars. And also on the quality side, the strength of the used cars of Toyota is seen in the quality aspects and also the easy-to-repair -- repairability and also the parts availability. Also originally, we had strong durability as a feature of Toyota cars. This is once again reevaluated and probably this is one reason why it has seen a positive response. And there will be a further additional comment from Mr. Nagata about the domestic sales. And about the forecast revision, there was a drop in production volume in spring and I think until the revision, there had been many initiatives taken. And to respond to that question, yes, it's difficult to explain briefly and this was not something we have achieved just by ourselves with our dealers and also our suppliers, also people in the transportation, and people working at the gasoline stations. I really think that the people who have made strong efforts in recovering the economy. There are many people who believe that that is our mission related to the automobile industry and I could feel those strong efforts made with strong feelings. So, if I say it in simple words, I think I can say that we did things that we thought are the basics things that we need to do. But -- and we had been introducing new models nine -- around to 10 new model launches. That's very simple to say but difficult to do. But with strong efforts, we were able to make that reality. And in Japan, in springtime, there were no plant production operation, but people made efforts to try to work. So, VA activities were done to promote the cost reduction efforts and also there were people who visited the suppliers to find areas that we can make improvements in costs. There were people who worked on making the masks, protective gears, and then facials as well. So, when the fixed cost became very lean and when the recovery time period, we were able to make a rapid improvement. And in the meantime, everyone was focused on not to stop the economy, the improvement of productivity for protective gears that was another activity that people engaged in. Also for the vaccine refrigerator manufacturing, there was a manufacturer who had a bottleneck process and therefore there were members who visited these manufacturers. And also in order to make efficient the vaccination process because we see in US, UK, long lines to receive vaccine shots and there were members who thought that, we will be able to apply our TPS concept so that we can streamline and make efficient this process. And these were some examples of the efforts that was made up to today. And from the sales side, maybe, Mr. Nagata would like to add some explanation. Jun Nagata: This is Nagata speaking. Regarding the sales side status, I'd like to make some additional explanation. Now, on the springtime under COVID, we did have no idea how much sales we could achieve under COVID. But President Mr. Toyoda has made a statement of the criteria to work for ¥500 billion in operating income and eight million for the production -- for the sales volume. And Japan, which I am in charge of overseeing, we did not just think about Japan but thinking about the individual dealer levels, we created a standard or a target. And every week we rolled out our activities and did a follow-up to see the situation against our plan and also to follow-up on the stock level. Of course this is something that is very basic that we would usually do, but we really focused on these basics areas. And another thing is that for each model there are different profitabilities and for certain plants there are models that is difficult to sell according to season as well. So we try to lose the differences of the operation along the plants and the models and we try to expand our sales. On the meantime in parallel reducing the operation gaps between the plants and models. And this globally we could see the promotion of our online sales, regardless of region in a noncontact form how much we can reach out to our customers was key and how to receive the orders from our customers in a noncontact way. Payment was also difficult. So utilizing online transaction and also the financial products that we have a combination of this was considered to provide a easier to buy environment for our customers. And also when our customers come to the dealers to receive maintenance or inspections there were the disinfectants that were utilized and preventive measures taken so that customers will have a peace of mind visiting the outlets. This is not Japan, but globally all the dealers had made efforts to provide this kind of peace of mind environment. So we are focused on thinking about what will the customers be worried about, how can we make them feel safe. And with those thoughts, we tried to build up the efforts of that and take that into action. So I think this was the kind of activities we've done. And for the employees as well for the stakeholders' activities to add a little further, the large factor was how to communicate among each other. This communication style changed largely in this period. And specifically speaking our top management President, Mr. Toyoda in an online environment to the employees and also to stakeholders, he had changed the style or he has strengthened his communication to be specific to employees and to the employee side between the employees every week with the senior members, we had a weekly meeting with President, Toyoda. And before COVID, members were limited to people who could physically come to the headquarters and IT prefecture in Toyota city. But with online environment there were more people who could participate more easily. So the global senior executives and each CEO of region also participate in addition to the past participants and we could utilize this meeting to make quick decisions and also share information. So that was a positive effect on our communication. And every four years in Toyota we make a mid-term announcement for our product lineups in the next four years. We call that the Toyota World Convention. Last year was the timing to hold this world convention. But unfortunately under COVID, it was difficult to have the usual physical Toyota World Convention. And this time Mr. Toyoda gave an idea that we should take a message, his message by video and create a package and to deliver that online to our global stakeholders. So conventionally for the world convention it would be a face-to-face meeting. And usually those people will be limited to the global distributor companies and also the top management of dealers to about 1,000 -- between 1,000, 2,000 members. But because of the online employees could also be included in watching this distribution so -- the video and about 50,000 members were able to view this. And I could see the effect from all of this communication change. The employees and the stakeholders who are engaged in various activities could see the direction where Toyota is heading to and they were able to keep calm and focus on the work that they were engaged in now. That was what I felt as a positive effect of making this change in communication. Also Toyota Times from April, we started the English language posting as well. So including that the page view has increased significantly about 2x more than last year's page view. So 2019 versus 2020, we had increased our page view to double level. And as an internal communication tool it was very effective. And changing the subject a little for JAMA beginning of this year, we sent a message of our appreciation to the 5.5 million people who've engaged in the automobile industry business. So to extend our gratitude we had a TV commercial. And after a week Mr. Toyoda as the President of JAMA has extended his message to all of the 5.5 million stakeholders and the five auto associations of the industry OEMs and part association. There's five associations and there is about two million members from -- who belong to the five associations. But other than that, there's people in the transportation industry people working in the gasoline stations everyone had made strong efforts to continue to work even under COVID. And that has made our results that we have announced possible. So that is why we wanted to extend our appreciation in this opportunity. As a result, the 5.5 million people including the people who work in the gasoline stations and transportation, we have received voices from them that they were thankful of the message. And going forward for the automobile industry, we have various challenges like carbon-neutral initiatives and so forth. We hope that it can become a trigger to join the forces to achieve this target. So in that sense as well changing the style of communication probably may be effective in creating a force to achieve the future targets. That's how I felt. Thank you. Unidentified Analyst: Thank you very much. Kenta Kon: Thank you very much Mr. Chiba. Operator: The next question from NHK Noguchi-san please. Noguchi Shuji: Yes. Noguchi from NHK. I have two points, a little bit aside from the financial results. But first of all regarding the semiconductors. Automotive semiconductors are at a shortage globally. Regarding the impact what are your thoughts? Do you have impact for the near term and also for the mid to long-term? And the second question is a completely separate topic from the financial results, but the Tokyo Olympic-Paralympic Committee, the President, Mori there was a comment of discrimination against women. You are a sponsor of the Olympic-Paralympic games. What -- how do you view this? Kenta Kon: First of all, regarding semiconductors, I will explain about our situation. Semiconductors, there is globally tight demand-supply situation. We are at a similar situation. But for the near term, we do not see any decrease in our production volume. Then are we secured for the mid to long-term? No. We do see the risks. That is why every day every week every month, not just Tier-1 suppliers, but the conductors manufacturers, semiconductor makers included we are communicating to understand the situation on a daily weekly basis. Regarding the forecast, we think -- we do hear voices that it might continue until the summer. But talking with our suppliers and our purchasing division maybe it will not continue to the summer it might be resolved at an earlier stage. That is one view. And the second question by Mr. Nagata. Jun Nagata: Yes towards the comment of President Mori, I would like to introduce the comment from our President Akio Toyoda on this matter. Toyota was born in Japan and we have grown into a global company thanks to the support of people from all over the world. Our goal is to be a company that is the best in town and to create happiness everywhere that we do business. In the same way that we respect our hometown and our home country, we also care deeply for our home planet Earth, the home to all human beings which is why we are working to help realize the United Nations Sustainable Development Goals. This is also the spirit of the Olympic and Paralympic games which through sports aim to create a peaceful and an inclusive society without discrimination in which anyone can participate. We became a top partner of Olympics and Paralympics because we share these values. We are disappointed by the recent comments from the President of TOCOG which are contrary to the values that Toyota respects and supports. That is the comment from President Toyoda. We have discussed this matter in depth within our company. And to convey Toyota's values and perspective towards the world correctly we have concluded that we should not keep silent. Therefore we decided to issue President Akio Toyoda's message today. That is all. Unidentified Company Representative: Going on to the next question from Toyokeizai Kigawa-San. Please go ahead with your question. We are now switching the screen. Yukinobu Kigawa: This is Kigawa speaking from Toyokeizai. Can you hear me? Unidentified Company Representative: Yes. Yukinobu Kigawa : I have two questions. My first question has been raised a little earlier. This is related to the tight supply of semiconductors in the automobile business. Currently it is in quite a tight supply, but you are making efforts to continue your daily operation. But compared with other OEMs it seems that Toyota's impact will be limited. So do you think that the reason why the impact is limited it was to a certain background at the East Japan earthquake Renesas has received damages at its plant. And I was assuming that with the BCPs that you've created after the damages it had a lesson learned and was able to utilize that lesson for this time with the semiconductor crunch. Another was about electrification and Japanese government said that 2030, all the new car sales should be limited to electrified vehicles. So that was a policy announced. And you have Daihatsu Motors under your Toyota Group and you will probably have -- cannot avoid electrifying the Kei vehicles as well. How are you going to work on that on those mini vehicles? So probably hybrids will be the most realistic solution but can we ask can I ask about your thoughts about that point? Kenta Kon: Thank you. Regarding first about the semiconductor question I'm sorry, I think I didn't provide a full response in the earlier question. So as Mr. Kigawa mentioned after the global financial crisis we had a reflection on seeing a stop in our supply chain. So we have looked into the multiple tiers of our suppliers and tried to create a system that we call RESCUE to find out where we need to rescue after seeing challenges. So that system we have worked on creating since the global financial crisis. And to the suppliers this time with the semiconductors we've made confirmation about the current situation why it occurred. And then what we hear is that to suppliers to a certain extent I think we can say, we are providing a rather sure production plan -- production volume plan, on a monthly basis or a several month basis. And for a long-term plan, it is about three years' forecast. And we have been repeatedly communicating with our suppliers with these plans. And that has supported this -- us this time. And for BCP, with our business continuity plan of course each part has different plans. But for each of the parts we had secured, four to six months of stocks as necessary. And the third part is about in this tight supply of course, we cannot cover all of the challenges with our RESCUE system. So it is, key to have the communication with our suppliers, including, not just the Tier one suppliers but Tier two and so forth. So that we can have -- be aligned, in working together. So when we hear from the purchasing division, about -- there were some about, 10 or more telephone conferences held with the suppliers. So when we had supply problems, communication was enhanced with the suppliers. And when we listened to various voices, it seems that, the style that we make our orders to our suppliers, it is regarded as a sure order based on a sure production plan. And continuing this practice probably has helped us in this difficult situation that we are facing. That was at the base that we have built with our relationship with our suppliers. Yukinobu Kigawa: And Mr. Kon, regarding semiconductors, the electric industry with the work from home, I think you have to take away, you're trying to secure the -- and having a competition of the semiconductors with the home appliances and also the games. Do you have a concern that the price will be increasing with this tight competition? Kenta Kon: Well, we do assume that there may be a certain amount of price increase, for semiconductors. And of course, there's a competition with the gaming industry for the semiconductors. But when we think of -- look into what kind of semiconductors are being produced like, consumer products, smartphones, games, consoles. And those -- the semiconductors there is not exactly the same type of semiconductors that we use for the automobiles. Of course, how the semiconductor manufacturers at foundries will allocate the semiconductors that they manufacture, will be based on the communication that we have with them. So we need to thoroughly communicate, how much demand we will have in the next two, three years for semiconductors, not just with the Tier one suppliers, but Tier two, Tier three and so forth. Communication a will be key. Yukinobu Kigawa: Thank you. And my question is about, electrification? Kenta Kon: So for your electrification question, I think, Mr. Nagata will make some additional comments. But for the electrification of the Kei vehicles, the mini vehicles, is also something we have to work on. For electrification, inside of Toyota Group, our understanding is that we have strength in the electrification technologies. And some people think that, if we use Toyota technology, it might be expensive for a Kei car. But for the element technologies, of course, they will be shared with the Kei vehicles. And even with the Kei vehicles, for what it can be used, we would like to proactively use it, so that we can utilize the synergy as a group. So probably we will start with the hybrids our strength area. But, from the past, when we look at a long-term perspective, it's important to provide the electrified vehicles that our customers want. That way of thinking has not changed. And that way of thinking will also be applied to the Kei vehicles as well. Yukinobu Kigawa: Thank you. Unidentified Company Representative: Thank you so much. I believe, there are more questions, but unfortunately due to the time constraint we would like to receive one final question, from Chunichi Newspaper, Ms. Osada please. Please Ms. Osada. Hiromi Osada: Yes. Osada from Chunichi Newspaper. Thank you. Very different from the figures of the financial results, but I would like to ask your views. You clearly showed a recovery trend this quarter. Under COVID-19, I think the financial results, how it is delivered is quite different as usual times. So maybe I should be asking in the final closure, but with COVID you have changed your work style drastically and also the response to semiconductor shortage there are new concerns. But you are accelerating your cooperation with your partners. A year with COVID-19 experiencing that I believe your work style has changed drastically internally and externally. Your company is very famous for Genchi genbutsu going to the actual site and seeing the actual product. I believe that has changed and you transformed some of it online. So what I want to ask is your relationship with your suppliers how it has been transforming? And also how you calculate your cost reduction activity and your relationship with purchasing, I believe that might have changed. What kind of transformations have you experienced, please? Kenta Kon: Thank you. First I would like to comment. As Osada-san you said, yes, how we work has changed. It's difficult to explain with just one example. But today, I am in Toyota city, the headquarter. 60% of the people are coming to the office in Toyota city; Nagoya 30%; and Tokyo 15% are coming to the actual office. Of course, there are many challenges, but we believe that remote type of work style has penetrated. Also you mentioned about Genchi genbutsu going to the actual site and seeing the actual product. For example, the business trip costs that we have had last year, it was several billion yen. It is because we were saying we have to go to the actual site. We did actual visits. However this year, there is a decrease of 99% in TMC. So, basically no business trips. Why we visited the actual site? I believe in retrospect there has been a wasteful business trips maybe, but the final part for example installing the equipment our skilled workers, our craftsmen visit from Japan and confirm at the final stage. I think that still remains our best option. However, now we see it through the camera and provide instructions remotely. The most important part we decided to focus. I think we have been changing our work style in that way. Our relationship with our suppliers, I'm not sure, if I should say this, but conventionally relationship with our suppliers were basically mainly the relationship with our Tier 1 suppliers. So beyond that, we were asking Tier 1 suppliers to basically take responsibility. However, regarding this year, of course suppliers were struggling when our operation rate went down sometimes there was a huge burden fluctuation. So Tier 2 suppliers 10,000 suppliers, we actually communicated with them. This is a totally new kind of relationship we were able to build this year and last year. So the relationship with our suppliers changed and also SSA we call, which is parts where we set a very high level of quality standard. Maybe we did not request it directly but the suppliers because it's – they are going to deliver to Toyota. If it's just a very tiny scratch they did not deliver to us. But for these things we can visit the actual site and we can let them know. If it's just a small scratch then we can accept it at Toyota. Our skilled workers actually visit the site and hold discussions to align the level of quality. Previously Toyota members, the suppliers didn't know us at all and maybe they felt well TMC were scared to meet them. But by seeing them directly, I think they felt a sense of security that we can work together. And I think that also accelerated our cost reduction activities. I don't think I am able to cover everything today. But if I may I did share a few examples with you. Thank you. Hiromi Osada: Thank you. Unidentified Company Representative: Thank you very much Ms. Osada. With this, we would like to end our brief briefing for the financial results. Thank you very much for your participation today.
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.
