Toyota shares fall as it warns of Iran war costs

(Sharecast News) - Toyota shares fell on Friday after the world's largest carmaker forecast a sharper-than-expected decline in annual profit, warning that the Iran war would add about JPY 670bn (£3.14bn) of costs this financial year through higher materials, transport and supply-chain pressures.

The Japanese group said it expected operating profit to fall to JPY 3.0trn in the year ending March 2027, down from JPY 3.8trn in the year just ended and well below analyst expectations of about JPY 4.6trn cited by Bloomberg and Reuters.

The forecast sent the shares as much as 3.5% lower before they closed down about 2.2% in Tokyo.

Toyota said the impact of the Middle East conflict would be felt through higher raw material costs, delivery delays and lower volumes.

Takanori Azuma, Toyota's accounting group officer, said the pressure extended to "fuel costs, transportation expenses, and the cost of paint and other materials used at vehicle assembly plants".

The company's top suppliers are also facing rising costs and shortages of aluminium, resins and other materials, with Japan's carmakers heavily reliant on aluminium imports from the Middle East.

Toyota said it would be difficult to offset the full JPY 670bn hit from the disruption, particularly as it has pledged to absorb some cost increases faced by group suppliers.

Quarterly operating profit fell 49% to JPY 569.4bn in the three months to 31 March, its weakest quarterly profit in more than three years and well below the JPY 813.3bn expected by analysts in an LSEG poll cited by CNBC.

Revenue rose 1.9% to JPY 12.6trn, in line with estimates, while vehicle sales fell to 2.29 million from 2.36 million a year earlier.

Toyota also reported JPY 50.7trn in annual net sales for the year just ended, making it the first Japanese company to exceed JPY 50trn in annual revenue.

It forecast net sales of JPY 51trn for the current year, below analyst expectations of JPY 53.25trn cited by Bloomberg.

The outlook came in the first results under new chief executive Kenta Kon, who took over in April after previously serving as chief financial officer and as an aide to chairman Akio Toyoda.

"It's impossible for us to accurately predict what the market will look like," Kon told reporters, according to Bloomberg.

He said Toyota would continue to identify waste "one by one" while navigating significant headwinds.

Toyota was also dealing with pressure from US tariffs, which it said cost JPY 1.4trn in the year just ended, as well as intensifying competition from Chinese automakers and higher investment in future technologies.

The company said its breakeven volume had risen because of investment in human resources, future-oriented spending and the impact of tariffs.

Despite the cost pressure, Toyota expected hybrid sales to exceed 5 million vehicles for the first time this year, as higher energy prices push some consumers toward more fuel-efficient models.

Overall vehicle sales are expected to dip below 11.2 million units, from 11.3 million in the prior year.

Chief financial officer Yoichi Miyazaki said Toyota's operating income was on track to decline for a third consecutive year, reflecting the difficulty of adapting to rapid changes in the industry.

"The scope of our responses and measures we have taken have been largely limited to what can be implemented in the short term," he said.

Miyazaki said Toyota needed to expand revenue from its value chain, including after-sales and service operations that support about 150 million Toyota vehicles globally.

Bloomberg reported that the business was expected to become the company's largest source of profit.

At the close on Friday, Toyota Motor Corporation shares were down 2.17% in Tokyo at JPY 2,913.

Reporting by Josh White for Sharecast.com.