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Toyota heads into lower-growth curve after profit bonanza

The signboard of the national headquarters of Toyota Motor Sales USA, is seen in Torrance, California April 28, 2014. REUTERS/Kevork Djansez
The signboard of the national headquarters of Toyota Motor Sales USA, is seen in Torrance, California April 28, 2014. REUTERS/Kevork Djansez

By Yoko Kubota

TOKYO (Reuters) - Toyota Motor Corp <7203.T> faces stalling growth this fiscal year as the export-boosting tailwind that it and other Japanese carmakers have received from the yen's sharp depreciation over the past 18 months gradually blows itself out.

For President Akio Toyoda, the quieter year in prospect offers a different challenge to the major events that have marked his five years in charge, like the massive recalls of 2010, Japan's 2011 tsunami and the boycott of Japanese products by Chinese consumers following a territorial dispute in late 2012.

Instead, when Toyoda briefs reporters on last year's earnings and this year's prospects later on Thursday, he'll be expected to explain how the world's best-selling car maker can keep growing while coping with more routine matters - a declining Japanese auto market, hit by a sales tax hike in April, and a hiatus in vehicle launches.

Toyota's net profit is expected to grow just 7.4 percent to 2.03 trillion yen ($20 billion) in the financial year to March 2015, according to a mean estimate of 24 analysts surveyed by Thomson Reuters I/B/E/S.

For Toyota, that would represent a swift deceleration from the doubling of net profit that analysts estimate took place last year. They expect Toyota to report a record net profit of $18.6 billion for the year ended March 31, buoyed by exports.

The dollar has risen nearly 30 percent against the yen since mid-November 2012, when it first became clear that Shinzo Abe, who has been pledging to boost Japan's economy, would take power as prime minister with measures that have weakened the domestic currency.

Yet such a significant decline in the value of the yen versus major currencies like the U.S. dollar and the euro is unlikely to be repeated over the next year, meaning profitability of Toyota's export sales to major markets like the United States won't grow much.

Famously cautious in its financial forecasting, Toyota itself could project no growth when it issues its forecast for the financial year through March 2015 - or even predict a fall in profit, one source close to Toyota and analysts said. That would mark the first time in three years that the home of household-name models like the Corolla sedan and the Prius hybrid expects a profit decline.

"Toyota is temporarily entering a lull this year as it gets ready for next year and beyond," said Koichi Sugimoto, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities. Sugimoto said Toyota isn't expected to launch key new vehicles, including the remodeled Prius hybrid, until the fiscal year beginning April 2015.

CONSERVATIVE VIEWS

A conservative forecast from Toyota would echo that of its peers. Rival Honda Motor Co <7267.T> said late last month that it sees net profit for this financial year growing just 3.6 percent, with weaker emerging markets' currencies biting into profits.

Toyota subsidiary Daihatsu Motor Co <7262.T> said it expects net profit to fall 2 percent this year, while five out of seven auto parts makers in the Toyota group see profits down this year, including Denso Corp <6902.T> and Aisin Seki Co <7259.T>.

Toyota has relentlessly cut around 300 billion yen in costs each year. Unlike rival automakers Nissan Motor Co <7201.T> and Honda that have been in expansion mode, Toyota has put a freeze on building new plants for three years since around early 2013.

But for it to bolster growth, analysts say it must now invest more, especially to increase production capacity and marketing.

"Toyota is reaching a turning point at which it will move from its emphasis on defense to significantly more active commitment to growth," Jefferies analyst Takaki Nakanishi said in a report. Nakanishi said there's an expectation that Toyota could soon show how it plans to expand capacity.

While Toyota expects its group-wide vehicle sales in Japan to drop 5 percent to 2.18 million vehicles in calendar 2014, it sees overseas sales growing 6 percent to 8.14 million vehicles. Toyota's group sales figures include Daihatsu and Hino Motors

<7205.T>.

($1 = 101.5550 Japanese Yen)

(Reporting by Yoko Kubota; Editing by Kenneth Maxwell)

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