This makes sense.

Toyota's 28% decline still enviable

(DETROIT FREE PRESS) Thursday was a rare bad day for Toyota Motor Corp., the world's second-largest and most profitable automaker.

Toyota, whose US sales and marketing headquarters is in Torrance, reported a 28% decline in fiscal fourth-quarter earnings and saw its stock slide 4% on the day. Toyota's stock closed at $100.56 Thursday, down $4.20 per share.

Toyota's net income fell to 316.8 billion yen -- $3.2 billion -- for the three months ending March 31, based on that day's exchange rates.

The automaker missed the 375.2 billion yen median of six analyst estimates compiled by Bloomberg.

But a bad day for Toyota may still be the envy of the auto industry. For the same 3-month period GM lost $3.3 billion, Ford reported a profit of $100 million and Chrysler LLC, now a private company that does not report results, recently acknowledged that it is not yet profitable.

Like many automakers, Toyota is getting hurt by falling pickup and SUV sales in the United States and rising raw material costs. But unlike the Detroit Three, Toyota is also facing unfavorable currency exchange rates.

"The conditions surrounding Toyota are changing rapidly, with the rise in raw material costs, drastic changes in foreign exchange rates, and more stringent environment regulations worldwide," said Toyota Senior Managing Director Takeshi Suzuki during a conference call Thursday. "We plan to turn all of these challenges into business opportunities."

Toyota also said it expects earnings to drop 27% for its current fiscal year, which runs from April to March. Assuming the yen continues to gain against the dollar and the euro, Toyota expects its operating income will decline by 690 billion yen or $6.9 billion.

"It just shows Toyota is not immune to problems in the economy," said Erich Merkle, a vehicle forecasting analyst for IRN Inc. "They've really been helped by a strong U.S. dollar for a number of years, but now the dollar has gone the other way."

Lehman Bros. equity analyst Tsuyoshi Mochimaru predicted Toyota's dour forecast will continue to depress the company's stock, but also pointed out that Toyota typically provides Wall Street with worst-case scenarios and then outperforms those forecasts.

"We think these are bottom-end targets," Mochimaru said in a research note Thursday. "However, the 30% profit-decline outlook is likely to have a heavy impact on investors."

The last time Toyota's annual profit declined was in the fiscal year ending March 2002; the last time annual sales fell was in the year ending March 2000, mainly because of a weak dollar.

Honda Motor Co., Japan's No. 2 automaker behind Toyota, said last month that its January-March profit declined 86% compared with the same period a year ago because of a corporate tax levied on its Chinese joint venture. Nissan Motor Co. reports earnings next week.

Toyota's full-year results were much better than its fourth quarter. For the year, Toyota said net income increased 4.5% to $1.7 trillion yen ($24.5 billion) this year. Toyota's revenues increased 9.7% from 23.9 trillion yen ($241.4 billion) last year to 26.3 trillion yen ($265 billion).

Toyota reported that sales for the quarter increased 3.7% to 6.6 trillion yen ($66.2 billion).

Toyota also continues to gain market share in the United States and said it reached a record high of 16.3% for the year.

But Merkle said Toyota's problems in North America are significant. Last year, Toyota launched its redesigned Tundra pickup while ramping up output from its new plant that opened in San Antonio, Texas, in 2006.

"It certainly starts to impede profitability when you have a plant that is not operating at full potential," Merkle said.

Toyota's stock is trading at the low end of its one-year range. It is down more than $27 from its 52-week high of $128.33, reached last July. The low over the range was $91.21.