Toyota Motor (TM) , one of the most successful automakers in the world, has been having a hard time accelerating its profits.
The company is headed for a year of decline, possibly the first in its history.
Toyota Motor's profits fell sharply in the second quarter as well as in the entire first half of the company's fiscal year. The company's shares rose just under 1% in Friday trading.
U.S. sales have hit a ceiling, even as Europe, Japan and the rest of Asia continue to show growth. That has led Toyota Motor to cut its forecast for North American sales for the year by 60,000 vehicles.
Even as Toyota Motor plans to move toward new growth opportunities, American consumers are clearly shifting away from the company's cars. This makes the stock unappealing to investors.
Recently released six-month numbers reveal the nature of the slump: North American vehicle sales equaled 1.4 million units, a drop of 12,695 units. Sales of its eco-friendly, strong-selling Prius hybrid dipped over the last few quarters as cheaper fuel options, including electric cars, dimmed the appeal of gas-electric hybrid cars.
Toyota's not alone in struggling with the North American market. Nissan Motors, another popular Japanese brand, has also posted a disappointing drop in profit.
Plus, the currency market is piling on additional woes. With Donald Trump winning the presidential race, the yen is now even stronger as risk-aversion trades keep gaining ground. This newfound strength is likely to affect Toyota Motor's fiscal third-quarter earnings, if the dollar-yen levels remain at these levels.
In addition, if Tesla Motors reaches its goal of rolling out 500,000 vehicles by 2018, Toyota will face even more competitive pressures.
The only silver lining for Toyota is in the Asian market.
The company is projecting 1.56 million vehicle sales for the Asia region this fiscal year, a full 90,000 more than what it estimated about three months ago.
Toyota has raised its forecasts for operating income and net income for the fiscal year (ending March 31, 2017). These more optimistic forecasts assume a possible lower value for the yen versus the dollar, which could face stress given the state of chaos and volatility in currency markets. But this isn't sustainable, nor is it something to bank on.
With no dividends on Toyota's American depositary receipts (Ford pays a 5.03% yield and General Motors offers 4.64%), and given the difficult business terrain for its cars in North America, investors are better off remaining patient.
Don't race in just yet to grab shares of this popular carmaker.
A blistering financial storm is about to hit our shores. When it hits, weak companies and their investors will be washed away. You need to put yourself on solid ground. And that doesn't just mean changing your investment allocations or loading up on cash.