Nissan Surges After Profit Beats Guidance, Analyst Estimates

May 13, 2014 3:10 am ET

(Updates with closing share price in first and second paragraphs.)

May 13 (Bloomberg) -- Nissan Motor Co., Japan’s second- biggest carmaker, jumped the most in 11 months in Tokyo trading after reporting profit that exceeded its own forecast and analysts’ estimates.

Nissan climbed 5.1 percent to 913 yen at the close of trading in Tokyo for the biggest gain since June, after yesterday reporting net income rose 14 percent to 389 billion yen for the year ended March. Profit in the fiscal fourth- quarter was 114.9 billion yen, beating the average analyst estimate by 15 percent.

“These numbers show Nissan at a turning point,” Max Warburton, auto analyst at Sanford C. Bernstein in Singapore, wrote in a report. The results “are enough to please this bull on the stock, as they at last see Nissan hit guidance. -- indeed exceed it! -- after multiple misses and warnings.”

While the Altima maker yesterday forecast profit that fell short of analysts’ projections, Chief Executive Officer Carlos Ghosn said that showed caution rather than a lack of confidence, after Toyota Motor Corp. and Honda Motor Co. predicted lower- than-estimated earnings. Barring a “major surprise” in its major markets, Nissan should be on its way to a “very solid” year, Ghosn said.

Profit Forecast

Yokohama-based Nissan in November had cut its annual net income forecast by 15 percent, blaming higher-than-expected incentives in the U.S., poor execution and slower growth in emerging countries. Ghosn, who also heads Renault SA, axed the chief operating officer role -- the company’s No. 2 position -- among the dozens of executive changes he made.

Yesterday, the maker of Qashqai SUVs, Leaf electric cars and GT-R supercars forecast profit that missed analysts’ estimates, as intensifying competition drives up incentive spending in the U.S.

Net income will climb 4 percent to 405 billion yen ($4 billion) in the year ending March, the highest since the 2008 fiscal year, Nissan said yesterday. That’s about 5 percent below the average of 20 analyst estimates compiled by Bloomberg.

The lower predictions by Nissan, Toyota and Honda comes as the benefits from a weaker yen fade and Japanese automakers brace for a record decline in domestic demand because of the nation’s first sales-tax increase in 17 years. Ghosn also faces incentive spending levels that are higher than the average of Asian auto brands in the U.S.

‘Totally Possible’

“Everybody seems to be conservative in their forecasts,” said Koji Endo, a Tokyo-based analyst at Advanced Research Japan. “The yen is stabilizing, the competition in the U.S. is getting fierce and the domestic market will decline this year.”

Nissan forecasts global deliveries will climb 8.9 percent to 5.65 million vehicles this fiscal year, representing a global market share of 6.7 percent, according to its statement. Revenue will rise 3 percent to 10.79 trillion yen, while operating profit will gain 7 percent to 535 billion yen, the company said.

The automaker has set the goal of achieving an 8 percent operating margin by March 2017 and 8 percent global market share.

“We think it is totally possible for us to reach 8 percent market share by the end of this plan, but at the same time, we don’t make it a very solid objective, because we are always afraid of people perceiving growth and profitability as contradictory,” Ghosn said in an interview yesterday.

Abe’s Policies

“If you want to keep profit and growth as allies, you need somehow to give a slight advantage to profit,” he said. “So growth is seen as an engine for profitability and not as a handicap for profitability.”

Nissan, which surged as much as 5.8 percent today, has gained 3.3 percent this year, compared with a 9.5 percent decline for the broader Topix index.

Nissan is basing its forecasts for the current fiscal year on exchange rates of 100 yen to the dollar and 140 yen to the euro. The company plans to make dividend payments of 33 yen per share in the current fiscal year, representing 30 percent of net income, up from 25 percent last year.

Like other Japanese carmakers, Nissan has benefited from Prime Minister Shinzo Abe’s economic policies, which helped weaken the country’s currency by about 18 percent against the dollar in 2013 and conferred an advantage over other automakers like General Motors Co. and Hyundai Motor Co.

That edge is eroding as the yen has risen about 3 percent against the dollar this year. The Japanese currency will weaken to 110 versus the dollar by the end of 2014, according to the average estimate compiled by Bloomberg. It traded recently at about 102.

Marketing Costs

In the U.S., Nissan overcame production delays with models including the top-selling Altima, boosting sales in the year ended March by 13 percent -- faster than growth at Toyota or Honda -- as it doled out higher incentives than most Asian rivals.

Nissan has been striving to bring discipline to selling and marketing costs after the November cut in profit forecasts and reshuffled management. Still, incentives in the U.S. rose 5.3 percent to $2,572 per vehicle in the first 4 months this year, according to market researcher Autodata.

The main priority for Nissan in the second half of its current mid-term plan is to boost operating margin in North America “way above” 8 percent, Ghosn said.

In China, its largest market, Nissan is targeting a 10 percent market share and said it expects deliveries in the country to climb to more than 1.4 million units this year. China accounts for a quarter of Nissan sales by volume.

Domestic Deliveries

This year the carmaker will start production at a new plant in Dalian in northeastern China. The automaker will also start producing the premium Infiniti Q50 and QX50 vehicles in central Hubei province and will probably produce the Q30 compacts in China in the future, Andy Palmer, Nissan chief planning officer, said in an interview in Beijing last month.

Nissan may build its next new plant in China or North America if demand keeps rising, though that will probably happen only after 2016, according to Ghosn.

Back home in Japan, Nissan boosted domestic deliveries by 11 percent in the year ended March on sales of new minicars developed with Mitsubishi Motors Corp.

The country’s carmakers face a pullback in consumer spending after the nation’s first increase in the consumption tax since 1997. The increase in the levy, which took effect on April 1, contributed to a 5.5 percent drop in industry sales last month. Nissan’s monthly non-minicar deliveries fell 21 percent in April.