Toyota Beats 4Q17 Rev. Estimates, Issues Gloomy FY18 View

Toyota Beats 4Q17 Rev. Estimates, Issues Gloomy FY18 View

 
Last month, the Japanese automaker Toyota Motor Corp Ltd (NYSE: TM) reported fiscal 2017 fourth-quarter revenues that surpassed analysts’ estimates. The company also reported a 6.4% y-o-y increase in unit sales. Still, the stock remains range bound between $105 and $110. One of the main reasons for the underlying weakness in the share price is the poor FY18 outlook issued by Toyota. There are a few more reasons to believe that the stock would decline in the days to come.

Toyota, which was uncrowned by Volkswagen as the largest automaker in the world, reported fiscal 2017 fourth-quarter revenues of ¥7.44 trillion ($65.46 billion), compared with ¥6.97 billion in the similar quarter of 2016. The Q4 revenues also surpassed analysts’ estimates of $62.32 billion.

During the recent quarter, the Automotive segment’s revenue was ¥6.67 trillion ($58.5 billion), up 4.5% on y-o-y basis. However, operating income fell 17.1% to ¥372.8 billion $3.27 billion). The Financial Services segment’s revenues increased 3.1% to ¥476.6 billion ($4.18 billion). Similar to Automotive segment, the operating income plunged 62.9% to ¥27.5 billion ($241.2 billion).

In the quarter ended March 2017, net income declined to ¥398.4 billion, from ¥426.6 billion in the year-ago quarter. The company reported lower profits from all the major regions in fiscal 2017. In fact, for the first-time in five years, Toyota reported its first quarterly operating loss of ¥71 billion in North America.

During the quarter, the company sold more trucks than cars in the US. The US currently sees a shift to smaller cars. According to Autodata Corp., the volume of mid size sedans sold in the US fell 15% on y-o-y basis. On the contrary, crossover and SUV sales increased 8.1%. The shift to smaller vehicles spells trouble for Toyota, which is heavily dependent on the sale of sedans. Furthermore, the earnings were also negatively affected by the strong Yen.

At the end of March 2017, the company’s long-term debt stood at ¥14.2 trillion ($131.5 billion), up from ¥13.59 trillion ($113.25 billion) last year. In the fourth-quarter of fiscal 2017, operating cash flow decreased to ¥3.41 trillion ($31.6 billion), from ¥4.46 trillion ($37.2 billion) in the same period last year.

Toyota expects FY18 revenues to decline 0.4% y-o-y to ¥27.5 trillion ($261.9 billion). More importantly, the company expects a full-year operating income of ¥1.6 trillion ($15.2 billion), down 19.8% on y-o-y basis. Likewise, FY18 net earnings are also expected to decline 18.1% to ¥1.5 trillion ($14.3 billion). Thus, considering the decline in the net income and poor FY18 outlook, we expect the stock to remain bearish in the current quarter.

The stock trades below its 50-day moving average and also faces stiff resistance at 110 levels. The Chaikin money flow indicator is below the zero line. So, we can infer that selling is going on currently. Thus, we expect the stock to move towards the next support level of 100.Toyota - Technical Analysis - 13th June 2017

To benefit from the erosion in the share price, we wish to invest in a low or below contract expiring on or around the 21st of June. Furthermore, to negate risk, we prefer a strike price of about $110.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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