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Toyota Earnings: Weak Yen Against the Dollar Continues to Help Offset Expensive Raw Material Costs

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Toyota Motor Corp
(7203)

We are not changing our fair value estimate after Toyota 7203 reported fourth-quarter and full-year fiscal 2023 results ending March 31. We will reassess all valuation inputs once we roll the model forward a year for the 20-F filing, which we expect in late June. Total company fourth-quarter revenue increased 19.4% year over year to nearly JPY 9.7 trillion, while operating income rose by 35.2% and margin by 80 basis points to 6.5%. Foreign exchange benefit was again the key profit growth driver, contributing JPY 235 billion in operating income growth including JPY 160 billion from the yen weakening against the U.S. dollar by nearly 14%. Excluding the foreign exchange translation benefit and various small items, operating income declined by JPY 80 billion as JPY 85 billion in cost reductions could not offset a JPY 435 billion raw materials cost increase plus other negative variances such as JPY 70 billion for higher research and labor costs. Materials net of cost reduction efforts for the full fiscal year took JPY 1.29 trillion from operating profit.

Management introduced fiscal 2024 guidance that has this headwind at only JPY 150 billion versus fiscal 2023 thanks to JPY 360 billion of expected cost reduction efforts partially offsetting JPY 510 billion of higher input costs. Fiscal 2024 guidance also includes a foreign exchange headwind of JPY 875 billion year over year with JPY 520 billion alone coming from the yen expected to strengthen against the dollar to an average exchange rate of JPY 125 from JPY 135 in fiscal 2023. So far in fiscal 2024 this assumption looks conservative to us as the yen remains above JPY 130.

The dividend policy has been changed to “increase dividends stably and continuously” from stable and continuous with no mention of an increase, so we expect management to favor dividends and less (but not zero) share repurchases starting in fiscal 2024. The fiscal 2023 full-year dividend will be JPY 60 per share, up 15.4% from fiscal 2023′s JPY 52.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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