Suzuki posts 72.4% y/y jump in Q1 FY 2017/18 net income on higher sales and currency tailwinds
Suzuki posted a stronger-than-expected 72.4% year-on-year jump in net earnings during the first quarter of fiscal year (FY) 2017/18, boosted by higher sales in India and Japan.
IHS Markit perspective
- Significance: Suzuki posted a 72.4% year-on-year (y/y) increase in net profit to JPY65.4 billion (USD591.3 million) during the first quarter of fiscal year (FY) 2017/18. Operating income was JPY85.1 billion, up 43.8% y/y, while net sales grew 15.3% y/y to JPY869.3 billion.
- Implications: The automaker's operating results were mainly helped by a change in sales and model mix, foreign-exchange currency fluctuations, and cost-reduction efforts. These factors offset increases in depreciation expenses, research and development expenses, and other expenses.
- Outlook: Suzuki has maintained its full-FY forecast that it announced on 12 May, and projects a net profit of JPY145 billion (down 9.4% y/y) and an operating profit of JPY240 billion (down 10.0% y/y) on sales revenues of JPY3.4 trillion (up 7.3% y/y). In terms of global group sales volumes, the automaker remains optimistic about its prospects in India and Europe and is forecasting total volumes to reach 3.071 million units in the current FY, up 5.2% y/y.
Suzuki has reported its financial results for the first quarter of fiscal year (FY) 2017/18, showing a 72.4% year-on-year (y/y) increase in consolidated net profit to JPY65.4 billion (USD591.3 million). Operating income was JPY85.1 billion, up 43.8% y/y, while net sales grew 15.3% y/y to JPY869.3 billion. Of the total, the automotive division accounted for net sales of JPY787.3 billion, up 15.0% y/y, while the segment's operating income was up 42.4% y/y to JPY79.4 billion. The company's efforts to expand sales by introducing products such as the new Swift and WagonR helped the automotive division. During the three-month period, Suzuki sold 741,000 vehicles globally, an increase of 9.7% y/y.
By region, net sales grew 9.7% y/y to JPY498.4 billion in Japan, while operating income grew 77.2% y/y to JPY47.2 billion. Suzuki's Japanese sales surged 8.1% y/y to 160,000 units during the quarter, comprising 132,000 minivehicles (up 9.2% y/y) and 27,000 sub-compact and standard-sized vehicles (unchanged from the same period last year). In Europe, net sales surged 4.7% y/y to JPY157.6 billion and operating income nearly tripled to JPY6.4 billion. The automaker sold 70,000 units in the region, marking an increase of 19.8% y/y. In Asia, net sales grew 23.3% y/y to JPY416.4 billion and operating income increased 38.6% y/y to JPY32.7 billion, with sales volumes of 470,000 vehicles (up 9.9% y/y). Within Asia, sales volumes grew in India to 368,000 units (up 14.3% y/y), Indonesia to 26,000 units (up 12.3% y/y), and other countries to 42,000 units (up 3.9% y/y). These gains offset declines in China to 29,000 units (down 22.0% y/y) and Thailand to 5,000 units (down 5.4% y/y), bringing overall volumes in Asia into positive territory.
FY 2017/18 forecasts
Suzuki has maintained its full-FY forecast that it announced on 12 May, and projects a net profit of JPY145 billion (down 9.4% y/y) and an operating profit of JPY240 billion (down 10.0% y/y) on sales revenues of JPY3.4 trillion (up 7.3% y/y). Suzuki has assumed average exchange rates of USD1:JPY110 and EUR1:JPY115 in arriving at these forecasts. In terms of global group sales volumes, the automaker remains optimistic about its prospects in India and Europe and is forecasting total volumes to reach 3.071 million units in the current FY, up 5.2% y/y.
Outlook and implications
During the first quarter, Suzuki's operating income was mainly helped by a change in sales and model mix to the tune of JPY26.7 billion, foreign-exchange currency fluctuations worth JPY3.7 billion, and cost-reduction efforts of JPY1.9 billion. These factors offset increases in depreciation expenses of JPY3 billion, research and development (R&D) expenses of JPY2.4 billion, and various expenses of JPY1 billion. Overall, the first-quarter financial results were in line with the automaker's FY 2016/17 results, when it posted a 37.1% y/y increase in net profit to JPY160 billion.
Suzuki's improved earnings in the first quarter stemmed primarily from high sales volumes in Japan and markets such as India, Europe, and Indonesia, which offset declines in China and Thailand. The automaker's Japanese sales, mainly comprising minivehicles, rebounded during the period as demand picked up for such vehicles following a mileage scandal last year, and also on the back of new model launches in the country. Mitsubishi, followed by Suzuki in May 2016, admitted that it had used non-compliant fuel efficiency tests for its vehicles. However, Suzuki denied any wrongdoing and insisted that the stated fuel-economy figures for its vehicles were accurate. Although it continued to sell its vehicles in Japan, sales there took a hit in subsequent months. The scandal also resulted in senior management changes at Suzuki, with the automaker appointing Toshihiro Suzuki as its new CEO. Key models contributing to its recent sales gains in Japan include the all-new Swift launched in December 2016, in addition to the Solio and Ignis. As for minivehicles, the company's sales in this segment recovered during the quarter, helped by positive demand for new launches including the Spacia Custom Z and all-new Wagon R. Furthermore, in India sales volumes were helped by positive demand for the Alto, WagonR, Baleno, and Swift, as well as taxation changes, while in Europe its sales grew on the back of models such as the all-new Ignis and facelifted SX4 S-Cross.
Last week, Suzuki's Indian subsidiary, Maruti Suzuki, reported a 4.4% y/y increase in net income during the first quarter of FY 2017/18 on the back of growth in sales volumes, a favourable product mix, an increase in non-operating income, and cost-reduction efforts. In a statement filed with the Bombay Stock Exchange, the automaker said its net profit during the period stood at INR15.56 billion (USD242.3 million), up from INR14.91 billion during the same period of the previous FY. The strong growth in earnings was aided by a 16.4% y/y increase in total income from operations to INR197.77 billion. Forming the basis of this growth in revenues was a 13.2% y/y jump in sales volumes to 394,571 units during the quarter, including 26,140 units in overseas shipments.
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