Nissan Motor Co., Ltd. (TYO:7201) (PINK:NSANY), the second largest car manufacturer in Japan ‘s first quarter net profit slumped by 15 percent, from 85 billion last year to its current 72.3 billion yen ($927 million). Its operating profit also dropped by19.7 percent to 120.7 billion yen ($1.5 billion) during the last three months. Based on the Thomson Reuters I/B/E/S data, the result is below the $142.5 billion yen average expectations of the six analysts.
According to the company, the stronger yen, weak European market, and costly sales incentives hit its profit. Nissan explained that yen’s strength against the dollar reduced the company’s profit by 25.7 billion yen, while increased sales costs and incentives to sell older models in the United States caused additional 76.4 billion yen reduction.
During the first quarter, Nissan sold 1.2 million vehicles globally, a 14.6 percent increase, compared with the number of vehicles sold during the same quarter last year. According to the company its current sales climbed by 2.6 percent at 2.14 trillion yen. The company is positive that it will be able to meet its 8 percent target sales growth in China. On the other hand, Nissan expects difficulty in increasing its sales in Europe during the second half of 2012 until 2013, due to the ongoing financial crisis in the region.
Joji Tagawa, corporate vice president for Nissan recognized the poor performance of the company during the quarter, but he is optimistic that the company’s profit during the next quarters of the year will be stronger. He said, “It is true that progress is poor. We will be introducing new models in the second half of the financial year. Our internal plan is that while performance in the first half is rather slow, we will see growth in vehicle sales and profits in the latter half of the year … It’s a matter of how much we can succeed in selling the new models, as well as how the yen moves.”
On the other hand, Koji Endo, an analyst from Advanced Research in Japan, speculated that there will be no upward movement for the company until the end of 2012. He cited the company’s weaker than expected profits during the first quarter, challenges brought by stronger yen, and the slow growth of Chinese and American economy, as the primary reasons for his pessimism regarding Nissan’s profitability by the end of year.
Nissan’s total vehicle sales in China increased by 10 percent, however demand for its vehicles in the coastal areas in the country is weak. Its growth in new markets in China is only 2.9 percent.
The company is trying to boost its sales in the United States through its newly released model of Altima. According to Eiji Hakomorim, auto analysts at Daiwa Securities, the company struggled to gain profits during the last three months because the company is pushing the sale of its older models while spending money in manufacturing its new models. According to him, Nissan’s profit decline is “not very worrisome.”
The company also launched its Nissan Power 88, its six-year business strategy along with its new car model to compete with its rivals to boost its global market share.