The Japanese automaker, Toyota Motor Corporation (ADR) (NYSE:TM) posted strong results in the first quarter of 2013. Its sales declined in all regions except North America, but fluctuations in exchange rates and the cost cutting efforts improved the company’s bottom line. Let’s take a review of the company’s first quarter results and some drivers that will help to improve its top and bottom line in the future.
Fundamental review
Toyota Motor Corporation (ADR) (NYSE:TM)’s first quarter profit jumped 94% year-over-year to 562.1 billion yen ($5.6 billion) globally. Revenue was 6255 billion yen ($62.9 billion), up from 5501 billion yen ($55.3 billion) a year earlier. Operating income increased 88% to 663 million yen ($6.7 million). For the financial year ending March 2014, the company raised its operating profit forecast by 8% and expects to book 1.94 trillion ($19.55 million), lower than the analysts’ estimate of 2.27 trillion.
Weak yen and cost reduction
Despite the fact that sales dropped in all regions except North America, the company’s operating income increased, thanks to cost cuts. Instead of increasing market share, the company is targeting increased profit in order to increase shareholder return. Cost reduction efforts significantly improved its bottom line in the first quarter. The company plans to continue cost cutting efforts to improve its profit structure. This is positive for shareholders as the return to investors will be increased in the future.
Competition
Toyota Motor Corporation (ADR) (NYSE:TM) is facing a stiff competition from General Motors Company (NYSE:GM) because General Motors is introducing new models to beat Toyota. Toyota stayed ahead of General Motors in the first half of sales by selling 4.91 million cars and trucks while General Motors sold only 4.85 million vehicles. General Motors is a strong player in North America, generating more than 60% of its revenue from this region. In the second quarter of 2013, General Motors revenue increased 3.9% to $39.1 billion while net income was $1.2 billion, down from $1.5 billion a year earlier. During the first half of 2013, its global sales amplified 4%, driven by the solid demand in the United States and Canada.
In the United States, Toyota Motor Corporation (ADR) (NYSE:TM) sold 1.3 million vehicles in January – July, up 8% from a year earlier. In July, Toyota’s sales increased 17%, outpacing Ford Motor Company (NYSE:F) on a monthly basis for the first time in three years. The increase is driven by strong sales of the RAV4 and Avalon. Toyota also benefited from the increased sales of Prius hybrid and Lexus. Prius sales increased 40% while Lexus sales inflated 26%.
Ford Motor Company (NYSE:F) has also increased its share in the hybrid market during the past year through its C-Max hybrid and gasoline-electric versions of its Fusion and Lincoln MKZ sedans. Its market share in the U.S. reached 16% at the end of its second quarter, up 517% over the last year and up 15% over the first quarter of 2013. Ford has six electrified vehicles available in the U.S. and plans to introduce more models in the future. The United States is the main market for Toyota Motor Corporation (ADR) (NYSE:TM), accounting for approximately a quarter of its global sales. Toyota has a strong foothold and a strong customer base in the U.S. market that will continue to benefit Toyota in the future.
The demand for hybrid cars is now increasing and Toyota Motor Corporation (ADR) (NYSE:TM) is leading the market with its Prius. Toyota committed to expanding its hybrid line and plans to introduce 18 new models of hybrid by the end of 2015. Toyota is also planning to introduce hybrid trucks in the future. The demand for hybrid cars is increasing and new models will be more attractive to the customers. This will increase its sales in the future because the Toyota hybrid is the ideal family car.
Rebounding of the housing market
The U.S. housing market is improving quickly, increasing demand of pickups and trucks because they are used for construction activities. Toyota Motor Corporation (ADR) (NYSE:TM) has an advantage that it manufactures heavy trucks while General Motors Company (NYSE:GM) have only light trucks. Further improvement in the U.S. housing market will surely increase the demand for pickups and trucks which in turn will increase Toyota’s sales in the future.
Bottom line
This is a strong year for Toyota Motor Corporation (ADR) (NYSE:TM). Weaker Yen and cost cutting efforts will continue to improve its bottom line in the future. The demand for hybrid cars is increasing that will provide an opportunity to expand its share in the hybrid market. Improvement in the U.S. housing market will also provide it a decent chance to expand its market share. In my opinion, Toyota is the best choice for long-run investors.
Aftab malik has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
The article This Auto Giant Will Never Fail originally appeared on Fool.com.
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