Toyota Earnings: Volume Growth and Weak Yen Drive Massive Profit Growth
Toyota 7203 posted excellent fiscal 2024 second-quarter results and we are leaving our fair value estimate in place. Total revenue increased 24.0% year over year and operating income rose by 2.6 times while operating margin increased 650 basis points to 12.6%. A weaker yen at JPY145/dollar versus JPY 138/dollar in the prior year’s quarter contributed over half the JPY 145 billion currency benefit to earnings, while massive improvements in volume, mix, and other marketing efforts contributed JPY 690 billion of the operating income increase. Toyota is operating at record production levels as demand remains strong while it recovers from fiscal 2023 chip shortage and other supply chain problems, all of which significantly drives scale. EPS of JPY 94.51 easily beat the JPY 65.14 Refinitiv consensus.
We expect robust earnings to continue for the rest of fiscal 2024. Management appears to share our optimism, because it drastically increased full-year guidance, something we said it should have done after the fiscal first quarter in our Aug. 1 note. Operating income is now guided 50% higher than the previous forecast to JPY 4.5 trillion with a 10.5% operating margin instead of 7.9%. Foreign currency made up JPY 1.18 trillion, or nearly 80% of the expected higher operating income. Guidance assumes JPY 141/dollar for the full year, up from JPY 125/dollar in previous guidance, which is what the rate averaged for first-half fiscal 2024. However, the spot rate is over JPY 151/dollar, so a much weaker yen than guided and U.S. auto dealers we cover saying they need more Toyota inventory makes us expect the firm will beat its new guidance. Management did not guide on the full-year dividend, but the interim dividend is JPY 5 per share higher to JPY 30, so we expect a full-year payout of around JPY 70 per share versus JPY 60 per share in fiscal 2023. Toyota’s goal is to increase the payout—stably and continuously—and share repurchases should continue in the second half of fiscal 2024.
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