Nissan Likely to Raise Forecast

YOKOHAMA, Japan—Nissan Motor Co. will likely raise its earnings forecast for the fiscal year if it can maintain momentum from its strong first quarter, a company executive said, even as he signaled caution over higher costs and the strengthening yen, reported The Wall Street Journal.

When asked why Nissan left its full-year forecast unchanged when it released its earnings last week, Joji Tagawa, a Nissan corporate vice president, suggested the company doesn't yet know by how much it will be able to raise its estimate.

"We aren't concerned about simply meeting our initial forecast," Tagawa said. "It is not our style" to make a minor change in our earnings forecasts every quarter no matter how small, he said.

Tagawa said Nissan will raise its full-year forecast when it sees a clearer outlook for steel and other raw materials prices and the yen—possibly after the end of the first half—suggesting the company is treading carefully amid an uncertain business outlook.

Last week, Nissan reported a net profit of 106.65 billion yen ($1.23 billion) for the April to June period, its highest quarterly net profit in more than two years. Investors were surprised by the company's ability to generate 71 percent of its expected 150 billion yen annual profit in only the first three months of the year, highlighting its quick recovery from an industrywide slump after the global financial crisis.

But despite the strong earnings performance, Nissan didn't raise its full-year forecast, and Tagawa said it is still too early to say the company is back on a sustainable recovery trend.

Nissan is also watching currency levels. The U.S. dollar could weaken against the yen, falling below 85 yen, Tagawa said. The greenback hit an eight-month low of 85.95 yen Friday before rallying back to around 86.70 yen Monday.

The Japanese car maker bases its earnings forecast for the current fiscal year on a dollar rate of 90 yen. Anything below the level would affect its profit forecast, as a stronger yen reduces profit the company earns overseas when repatriated, while also making Japan-built vehicles more expensive abroad.

Each time the dollar falls by one yen, 15 billion yen would be wiped off the company's operating profit for the current fiscal year, Tagawa said. Under its current assumptions, Nissan expects an operating profit of 350 billion yen for this fiscal year.

The Japanese carmaker posted a surprisingly strong operating profit margin of 8 percent in the April-June quarter, due to improved vehicles sales in all markets and cost-cutting.

However "it will be hard to maintain this 8 percent margin in the second and following quarters" of this fiscal year, as likely higher material costs and a potentially stronger yen could cut into profitability, Tagawa said.

Solid sales of sport-utility vehicles in the U.S. helped to boost the company's profit, but such demand is unlikely to last as consumers continue to shift to smaller, fuel efficient cars, he said.