Nissan Benefits From China Growth as Earnings Beat Estimates

Jul 28, 2014 9:20 pm ET

(Updates with share price in ninth paragraph.)

July 29 (Bloomberg) -- Nissan Motor Co. benefited from higher earnings in China, the world’s largest auto market, as the maker of Altima sedans delivered profits that beat analyst estimates.

Net income at Japan’s second-largest carmaker rose 37 percent to 112.1 billion yen ($1.1 billion) in the April-to-June quarter, beating the 84.3 billion-yen average of 14 analyst estimates compiled by Bloomberg. The Yokohama-based automaker pledged to meet its forecasts after cutting profit projections in each of the last two years.

The gains may signal Chief Executive Officer Carlos Ghosn is gaining traction after making dozens of executive changes in November to improve execution and cutting incentives in the U.S. Deliveries have outpaced Honda Motor Co. and Toyota Motor Corp. in the U.S. and China this year, though the company cautioned its growth in Asia’s largest economy may slow.

“The full-year guidance isn’t conservative,” Joji Tagawa, a Nissan corporate vice president, said at the earnings briefing yesterday. “We gave warnings two years in a row and this year we intend to hit guidance. We have learned a lot of lessons since November and taken many measures, so we are seeing the results now.”

Even so, the automaker has cut deliveries to dealers in China beginning this month, on signs inventory was building up since the end of June on intensifying competition, he said.

Nissan boosted deliveries in China by 21 percent in the quarter to 283,000 vehicles, helped by the X-trail sport-utility vehicle. The automaker will strive to meet its full-year China target, Tagawa said.

Annual Targets

The company reaffirmed its forecast for global deliveries to climb 8.9 percent to 5.65 million vehicles this fiscal year, boosted by new models including the Qashqai, Rogue, Datsun Go and Infiniti Q50. Nissan also maintained its full-year forecast for 405 billion yen in net income, 535 billion yen in operating profit and 10.79 trillion yen in revenue.

“Nissan is well placed to deliver on its outlook given our continued product offensive along with measures to enhance competitiveness, build market share and the ongoing benefits of our Alliance strategy,” Ghosn said in a statement.

The automaker rose as much as 4.5 percent to 1,047 yen, the highest intraday price in almost a year, and traded at 1,025 yen as of 10:09 a.m. in Tokyo. The stock has gained 16 percent this year, compared with a 4.2 percent decline for Japan’s benchmark Nikkei 225 Stock Average. Of 29 analysts tracked by Bloomberg, 14 recommend buying the stock, 14 recommend holding it, and one recommends selling.

“The market, which has been skeptical about Nissan reaching its target, now has higher expectations,” said Koji Endo, a Tokyo-based auto analyst at Advanced Research Japan. “It’s the right decision to adjust the China inventory now.”

Operating Profit

Operating profit in the quarter rose 13 percent to 122.6 billion yen, beating analysts’ estimate of 114.2 billion. Sales increased 10 percent to 2.47 trillion yen, compared with the average analyst estimate of 2.41 trillion yen.

In North America, Nissan reaped 51 billion yen in operating profit last quarter, increasing from 41.8 billion yen a year earlier.

In the U.S., Nissan showed a recovery from 2012 production delays for its key models including the Altima mid-size sedan, boosting January-June sales by 13 percent, compared with 5 percent growth at Toyota and a 1 percent decline at Honda.

Nissan’s incentives in the country fell 17 percent from a year earlier to $2,254 per vehicle in June, after it cut the sticker price for most of its models in 2013, according to market researcher Autodata. That’s still higher than most Asian car brands, including Toyota and Honda. Nissan is counting on the Murano SUV slated for later this year to further improve U.S. profitability.

U.S. Incentives

“Manufacturing and sales operations -- which had been falling like dominoes into chaos since March 2012 -- have finally stabilized,” Takaki Nakanishi, a Tokyo-based analyst with Jefferies Group LLC, wrote in a report this month. “Nissan must recuperate the core of the North American competitiveness and profitability.”

Back home in Japan, operating profit fell to 56.9 billion yen from 74.8 billion yen last year. Nissan’s domestic deliveries fell in the April-June quarter after the first consumption tax increase in the country since 1997.

The growth in profit was also helped by Nissan’s premium Infiniti brand, where first-half sales rose 30 percent to a record. Deliveries in China more than doubled from a year earlier.

Infiniti Chief

Infiniti chief Johan De Nysschen is leaving the carmaker to head General Motors Co.’s Cadillac brand, just as sales are rising and the brand is preparing to start production of two long-wheelbase models in China. De Nysschen had set a target for Infiniti to win 10 percent of the world premium market by 2020 to challenge Volkswagen AG’s Audi, Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz.

“It’s a big loss,” said Kota Yuzawa, an auto analyst at Goldman Sachs Group Inc. in Tokyo. “You need a very good consistency to build a good brand image.”

Nissan started sales of the no-frills Datsun brand in India and Indonesia and plans to start deliveries in Russia and South Africa this year to target the lowest end of the market.

Initial customer reaction has been mixed. In India, the first market where the brand was introduced, Datsun helped Nissan sales rise 48 percent in June after doubling in May. The same boost didn’t happen in Indonesia, where Nissan sales fell 24 percent last month following a 32 percent drop the month before.

Nissan is expecting Datsun cars to account for one-third to half of the group’s total deliveries in markets where it will be introduced.

The automaker posted an operating loss of 1.6 billion yen in Europe, compared with an operating loss of 6.7 billion a year earlier, amid mounting signs that the region is recovering from recession.