Shares of automotive giant Toyota dropped on Wednesday following the auto maker’s release of an operating profit outlook for the fiscal year ending March 23 that fell woefully short of analysts’ expectations. The disappointment might spell bad news for the entire sector in the coming times.
Profit margins for car manufacturers, including Toyota (ticker: TM), have been hitting record levels due to production constraints and lowered supply levels resulting in higher prices. However, with things slowly returning to normal, investors seem unsure of how to react to rising sales in the midst of shrinking profit margins.
Toyota announced its expectation of an operating profit in the current fiscal year of 2.4 million yen, a nearly 20% drop from the just-ended period and below analysts’ projections of roughly 3.4 trillion yen.
“We expect a decrease in our operating income due to unprecedented increases in materials and logistics costs,” said the company in a statement.
The guidance indicates operating profit margins of roughly 7.3% for the fiscal year 2023. Operating profit margins came in at roughly 10% for the fiscal year 2022.
Ford Motor’s (ticker: F) 2021 operating margins were reported at roughly 7.3%. There is an expectation of improvement, but Ford didn’t have the year that Toyota just had. Wall Street analysts expect the company to generate margins of 7.6% in 2022.
Estimates for U.S automakers seem to align with company-issued guidance. General Motors (ticker: GM) operating profit margins in 2021 stood at roughly 9.6%. According to Wall Street analysts, the company ought to generate margins of 9.2% in 2022.
On the other hand, Toyota shared dropped 4.4% in Tokyo. American Depository receipts of Toyota had also taken a 3.9% beating, landing at $160, while Ford and General Motors were both lower. The S&P 500 fell slightly, and the Dow Jones Industrial Average was slightly up. The indexes were up nearly 1% in pre-market trading before inflation data (excluding food and energy) registered on the market.
According to Toyota, the expectation is for revenue in the current fiscal year to be 33.000 trillion yen, a 5.2% increase. The company also expects vehicle sales to increase in the current fiscal year to 10.7 million units, an increase from 10.4 million units.
For the fourth quarter ended in March, Toyota announced operating profit dropped 33% to 463.8 billion yen. On the other hand, fourth-quarter revenue rose 5%.
Investors will have to determine what to do with auto stocks in the near future as the sales recover and profit margins go back to normal levels.
Ford and GM stocks are down year-to-date by roughly 34%. Toyota shares dropped just 1%.