Toyota forecast a slower-than-expected recovery in profits this year as a stronger yen and Europe's debt problems hamper efforts to undo the damage from the worst recall crisis in its history.
The world's largest carmaker beat forecasts with a fourth-quarter profit today as it cut costs and its aggressive sales incentives swiftly drew US customers back to showrooms.
But its projection for a 280 billion yen ($3 billion) operating profit for the year to end-March 2011 was little more than half consensus market forecasts for 546 billion yen.
Rivals such as Honda have also given cautious forecasts citing uncertainty over raw material prices and difficulty in getting a read on car sales after government subsidies to stimulate demand end in Japan and other markets.
Third-ranked Nissan reports its quarterly earnings on Wednesday.
Toyota has the extra burden of unknown legal costs and spending on promotions to entice buyers after recalling some 8 million vehicles globally since last October to fix sticking accelerator pedals.
Some lawyers estimate Toyota faces potential civil liabilities of more than $10 billion in US courts alone.
And it may face further federal fines, with US safety regulators opening a fresh investigation over whether the automaker had delayed action to address complaints about certain steering system parts on Hilux pickup trucks.
Toyota had flagged a small operating loss for last year, estimating a $2 billion hit from lost sales from the damage to its brand and the recall costs.
Instead, annual operating profit came to 147.5 billion yen, bouncing back from a loss of 461 billion yen in 2008/09.
Toyota booked a January-March operating profit of 95.3 billion yen, a third straight quarterly profit and a swing from the 682.5 billion yen loss a year earlier.
The carmaker said the impact on sales volume from its recalls was smaller in the 2009/10 financial year than it had estimated in February, while cost cutting had lowered its breakeven point to about 7 million vehicles from near 8 million a year ago.
Toyota expects to sell 7.29 million vehicles globally in 2010/11, versus 7.237 million last year.
"There's no change in the fact that we are in stormy waters. But now I feel that even in the storm, we can see a ray of sunlight in the distance," president Akio Toyoda told a news conference.
Less than a year at his post, Mr Toyoda, the media-shy grandson of the company's founder, has had to face grilling in US congressional hearings over Toyota's safety record. He has addressed workers and dealers in all major markets, at times tearfully, in an effort to boost morale and restore consumer confidence.
Toyota has beaten the market's growth in its most important US market in the past two months with the help of incentives including zero percent financing, and has said it would continue offering them at least until the end of May.
Last month, Honda reported January-March operating profit of 96 billion yen, while US rival Ford posted a larger-than-expected $2.1 billion quarterly net profit driven by strong US sales and market share gains.
Yesterday, Suzuki highlighted the risks to growth posed by Greece's growing debt woes as it forecast flat earnings this year.
Part of the threat comes from the yen's strength against the euro and dollar in times of uncertainty. Toyota forecast the dollar to average 90 yen and the euro 125 yen in the business year to next March.
Shares in Toyota have lost about 10 per cent in the year to date, about double the drop in Tokyo's transport sector subindex. Before the results, Toyota ended down 0.7 per cent at 3,495 yen, while the transport sector lost 1.3 per cent.
Reuters