Toyota Slumps on Pessimistic Outlook, ‘Unprecedented’ Costs

River Davis, Bloomberg News

Toyota Motor Corp. vehicles for export at the dockyard in the IPC Car Terminal at Tanjung Priok Port in Jakarta, Indonesia, on Friday, Dec. 10, 2021. Indonesia is scheduled to announce trade figures on Dec. 15. Photographer: Dimas Ardian/Bloomberg , Bloomberg

(Bloomberg) -- Toyota Motor Corp. shares fell the most in two months after the carmaker forecast a lower operating profit outlook for the current year, citing an “unprecedented” rise in costs for logistics and raw materials that are negating the benefits of a depreciated yen.

The shares of Toyota fell as much as 5.9%, the biggest intraday drop since March 7, after the world’s largest automaker forecast an operating profit of 2.4 trillion yen ($18.4 billion) for the fiscal year through March, short of analysts’ average projection for 3.4 trillion yen and profit of 3 trillion yen for the just-ended period.

Although Toyota is known for issuing conservative guidance, its tepid outlook took investors by surprise. In recent months, Toyota’s sales have kept up a strong pace, leading the automaker to post its second-highest unit sales ever for the year ended March. Toyota’s results are also being buoyed by a sharp decline in the value of the yen, which increases the value of earnings it brings back from overseas sales.

“It’s going to be a challenge,” said Satoru Aoyama, senior director of Asia-Pacific corporates at Fitch Ratings. “There are many factors that are compiling to create a negative trend.”

Despite issuing a profit outlook below estimates, Toyota is predicting higher vehicle sales for the current fiscal year, with a target of 10.7 million units, compared with 9.5 million for the period that ended March.

Read more: Toyota Tops Annual Sales Goal With Second-Highest Total Ever

Net sales for the year will climb about 5% to 33 trillion yen, Toyota said, short of analysts’ prediction for 34.7 trillion yen. The company is also buying back as much as 1% of its shares for 200 billion yen.

Industry analysts have been warning of a growing number of risks related to both automotive supply and demand in the coming year.

Global car production is facing further disruptions after more than a year of shortages of automotive semiconductors. In March, IHS Markit downgraded its output forecast for the current calendar year in order to factor in the impact from Russia’s invasion of Ukraine, then revised it down further last month in response to the fallout from Covid-related lockdowns in China, along with other mounting risks.

Read more: World’s Top Carmakers Feeling Full Force of China Covid Stance

Others are warning of potential shocks to demand. Jefferies Financial Group Inc. sees expectations for Toyota’s earnings as being “too bullish” for the current fiscal year. The aggravation of cost inflation due to the Ukraine crisis and a potential slowdown in global economic growth will probably cause “considerable damage” to the auto sector overall, according to analyst Takaki Nakanishi.

Fitch Ratings’ Aoyama said he remains “cautiously optimistic,” at least for the next six months.

“The yen depreciation has a positive impact accounting-wise but for the medium and long-term we still have greater uncertainty,” Aoyama said. “The yen depreciation, it’s like window-dressing but it doesn’t resolve the real, underlying issues.”

(Updates with unit sales forecast in fifth paragraph.)