Here’s What Could Hurt Toyota’s Fiscal 2019 Results

In fiscal 2019, Japanese automaker Toyota Motor’s (TM) financial performance improved on almost every front. The weak Japanese yen, Toyota’s reporting currency, was one of the key factors that added positivity to its financial figures.

Now, let’s take a look what Toyota’s management has guided for the company’s fiscal 2019, which will end on March 31, 2019.

Toyota’s management expects its fiscal 2019 consolidated vehicle sales to be nearly flat at 8.95 million units compared to 8.96 million units in fiscal 2018.

Similarly, TM has guided its fiscal 2019 revenue to witness a minor fall of 1.3% YoY (year-over-year) to 29 trillion yen. Toyota has calculated its fiscal 2019 guidance at an average exchange rate of 105 yen per US dollar compared to 111 yen per US dollar in fiscal 2018. Toyota expects this unfavorable currency movement to negatively affect its profitability in fiscal 2019.

Moreover, the company expects its fiscal 2019 operating margin to shrink to 7.9% from 8.2% year-over-year. TM also expects its net profit margin to be 7.3% in fiscal 2019, much lower than 8.5% in fiscal 2018.

In the auto industry, profitability is a key factor to consider when analyzing a company’s future growth prospects. Therefore, any factor that may negatively affect an automaker’s margins is to be watched carefully.

Given the strengthening value of the yen, Toyota could face intensified competition from its peers (VLUE) General Motors (GM), Ford Motor Company (F), and Fiat Chrysler Automobiles (FCAU) in North America. This competition could negatively affect investors’ sentiments.

Continue to the next article to find out what factors could drive Toyota’s valuation multiples in the coming quarters.