Toyota Motor Corporation (TSE:7203) shares have seen a notable decline this week, shedding 3.3% and falling further in line with its earnings growth trajectory. This recent market movement comes as the automotive giant navigates a complex financial landscape, marked by significant profit warnings despite robust revenue generation.
Over the past month, the company’s stock has returned -6.7%, sharply contrasting with the broader S&P 500 composite’s gain of 0.6% over the same period. While the stock has seen a modest rebound of 4.93% in the last month, its performance over the past year shows a significant decrease of 15.75%, with a year-to-date return of -4.86%.
Toyota’s financial results for the fiscal year ending March 31, 2025 (FY2025), revealed a mixed picture. The company reported consolidated net revenues of 48.036 trillion yen, an impressive 6.5% increase year-over-year. However, this growth in sales was overshadowed by a decline in profitability.
Operating income decreased by 10.4% to 4.795 trillion yen, and net income attributable to Toyota Motor Corporation also saw a 3.6% reduction, settling at 4.765 trillion yen. This divergence between rising revenues and falling profits highlights underlying challenges faced by the automaker.
Looking ahead, Toyota anticipates a challenging fiscal year 2026. The automaker has forecasted a substantial 20% to 21% year-over-year decline in net income, projecting it to fall from 4.7 trillion yen to 3.1 trillion yen. A primary factor contributing to this sharp anticipated decline is the impact of U.S. tariffs, which were already factored into its guidance for April and May 2025.
Additionally, the weakening U.S. dollar is expected to significantly affect the company’s annual forecast, reducing repatriated U.S. earnings. Chief Executive Koji Sato has expressed concerns regarding the uncertain and unclear nature of these tariffs, complicating strategic planning.
Despite these profit pressures, Toyota managed to maintain sales momentum in several areas. Consolidated vehicle sales for FY2025 totaled approximately 9.362 million units. While North American vehicle sales saw a 4% year-over-year dip, and Europe a 1.6% decline, the company reported modest sales gains in Asia and other global markets.
A significant bright spot for Toyota remains its robust performance in electrified vehicles. Sales in this segment surged by 23.2% year-over-year to 4.7 million units in FY2025, accounting for 46.2% of Toyota’s global vehicle sales. This momentum is expected to continue, with forecasts predicting electrified vehicle sales to exceed 5 million units in the coming year.
The financial forecasts have led analysts to revise their earnings estimates downwards. The consensus earnings estimate for the current quarter predicts a 26.5% year-over-year change, with the estimate for the current fiscal year indicating a 21.1% decrease. For the next fiscal year, however, a rebound is expected, with a projected 21.2% increase in earnings.
Given these factors, Zacks Investment Research currently assigns Toyota Motor a ‘Hold’ rank. Investors are now balancing the company’s consistent revenue generation and strong performance in electrified vehicle sales against the headwinds of tariffs and currency fluctuations, which are significantly impacting its bottom line.
