Toyota Earnings: Foreign Exchange Drives Profit Growth

Toyota started fiscal 2025 with a good first quarter that grew revenue year over year by 12.2% and operating income by 16.7% to over JPY 1.3 trillion. Operating margin rose by 50 basis points to 11.1%. However, the stock fell 8.5% on Aug. 1 Tokyo trading and is down over 5.5% at the start of Aug. 2 trading. This reaction seems too punitive given EPS of JPY 98.99 increased 2.3% and beat the LSEG consensus of JPY 90.67. It’s possible investors were hoping for an even better quarter and an increase in full-year guidance (which was instead maintained) given strong US demand for the company’s vehicles. Free cash flow could be responsible as well. We calculate that, including additions for equipment leased to others, it declined to negative JPY 750.1 million from JPY 263.5 million, with operating cash flow falling 49.7%. However, most of the operating cash flow decrease is from cash paid for taxes that nearly tripled rather than a profit problem from the auto business.