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Toyota posts surprise third-quarter profit

Toyota Motor Corp. announced Thursday a surprise profit last quarter and trimmed its projected red ink for the year, underlining a gradual recovery for Japan's giant automakers.
CORRECTION Japan Earns Toyota
Toyota Motor Corp. Executive Vice President Yoichiro Ichimaru on Thursday announced a profit in the latest quarter as government incentives boosted auto sales. Shizuo Kambayashi / AP
/ Source: The Associated Press

Toyota Motor Corp. announced Thursday a surprise profit last quarter and trimmed its projected red ink for the year, underlining the gradual recovery under way for Japan's giant automakers.

The world's largest car company attributed the unexpected profit — its first after three losing quarters — to measures by governments around the world designed to boost sales of environmentally friendly cars and other vehicles.

It was the latest in a string of healthier reports and forecasts from rivals including Honda Motor Co. and Nissan Motor Co., adding to growing evidence that carmakers are starting to rebound after being battered by the deepest industry downturn in years.

For the July-September quarter, Toyota reported net income of 21.8 billion yen ($242 million), bucking some analyst expectations of another loss.

The result was an 84 percent plunge from the 139.8 billion yen profit racked up during the same period a year ago, but was still an encouraging sign after the company posted its biggest loss ever in the last fiscal year.

Toyota said it now expected to sell more vehicles for the fiscal year through March 2010, raising its projections to 7.03 million vehicles from 6.6 million.

The revised forecast still is a 7 percent drop from the more than 7.5 million vehicles Toyota sold around the world in the last fiscal year, though sales were growing in Japan and the rest of Asia compared to a year ago. Like other Japanese car companies, Toyota is benefiting from solid demand in China, an auto market on track to become the world's biggest this year, replacing the U.S.

The company, which makes the Prius hybrid and the Corolla subcompact, said sales in the last six months were better than earlier expectations as government efforts to attract more buyers spurred global demand.

As a result, Toyota forecast a smaller loss for the fiscal year of 200 billion yen ($2.2 billion) — less than half the 450 billion yen ($5 billion) of red ink it had predicted earlier.

Executive Vice President Yoichiro Ichimaru said Toyota made good progress on "emergency" efforts to combat its crisis by cutting costs, but acknowledged global uncertainties remained.

"We continued to make improvements in our reductions in fixed costs," he said. "In addition, demand-stimulating measures by governments worldwide have contributed to our revised targets."

If Toyota can manage the latest forecast, it would be a major improvement over the 437 billion yen loss it posted during its last fiscal year, the worst performance in the company's 72-year history.

For the latest quarter, the company recorded 4.542 trillion yen ($50 billion) in revenue, down 24 percent from the same period a year earlier.

Despite the result, Toyota is still struggling.

In a tearful news conference Wednesday, Toyota pulled out of expensive but glamorous Formula One racing, acknowledging it has to focus on its core car business.

In the U.S., it faces an investigation by federal authorities into problem floor mats, suspected of jamming the gas pedal and possibly causing crashes. A recall would affect 3.8 million vehicles, including the top-selling Camry sedan, and the probe is already endangering Toyota's reputation for quality.

Toyota has said it is fully cooperating in the investigation and has issued a warning not to use the problem mats. But U.S. authorities said earlier this week that was an "interim measure" and have urged Toyota to come up with a solution for "the underlying defect in the vehicles."

As with other Japanese exporters, Toyota has been hurt by a strong yen. The dollar has traded at 90 yen levels in recent months, down from about 108 yen a year ago. Toyota said unfavorable exchange rates erased 180 billion yen (about $2 billion) from its latest quarterly profit.

Ryoichi Saito, auto analyst with Mizuho Investors Securities in Tokyo, said Toyota's recovery appeared to be slower than Honda's because of costs related to withdrawing from F1 and closing a California plant it ran with General Motors Co.

"Although vehicle sales may be turning out better than expected, Toyota still has a long ways to go in the second half," he said. "There is some optimism for auto operations."

On the bright side, Toyota is seeing rising demand in emerging markets like China, although that has yet to completely offset flagging sales in the key North American market. And sales are growing in Japan for its Prius hybrid, which is now tax free thanks to a government stimulus measure.

Signs are also emerging the decline in U.S. demand may finally be bottoming out, but sales remain weak. Toyota's vehicle sales in October edged up less than a percent in the U.S.

For the first fiscal half, Toyota lost 56 billion yen ($622 million), a reversal from 494 billion yen in profit, on 8.378 trillion yen ($93 billion) in sales, down 31 percent from the same period the previous year.

Honda, Japan's No. 2 automaker, last month raised its profit outlook for the full fiscal year to 155 billion yen ($1.7 billion), nearly four times its initial projection.

Earlier this week, Nissan, the nation's third-largest automaker, said it expects a narrower net loss of 40 billion yen ($444 million) for the fiscal year through March 2010, better than its earlier forecast for a 170 billion yen ($1.8 billion) loss.

Shares of Toyota, which reported after the close of trade Thursday, closed down 0.8 percent at 3,580 yen ($39) in Tokyo.