Nissan Cuts Guidance After Operating Profit Falls 70%

Japanese automaker Nissan Motor (NSANY -7.06%) said that its operating profit plunged 70% in the quarter ended Sept. 30, to 30 billion yen ($278 million), due to lower sales, higher costs, and unfavorable exchange-rate movements. The company cut its guidance for the full fiscal year on growing concerns about sales volumes and exchange rates. 

But Nissan wanted investors to note that its financial performance in the important North America market is improving, even as sales have fallen.

The raw numbers

Like many Japanese companies, Nissan uses a fiscal year that begins on April 1 and ends on March 31. The quarter that ended on Sept. 30 was the second quarter of Nissan's 2019 fiscal year.

Data source: Nissan Motor. As of Nov. 12, $1 = about 109 yen. Automotive free cash flow excludes results from Nissan's captive-financing subsidiary. Pp = percentage points. 

What happened at Nissan in the quarter?

Nissan is in the midst of a management transition following the ouster of longtime CEO Carlos Ghosn and other executives amid a series of financial scandals. A new CEO, current Nissan China chief Makoto Uchida, will take over on Dec. 1. Corporate controller Stephen Ma, who will become Nissan's CFO under Uchida, briefed analysts and media on this quarter's results.

Here's a look at how each region performed.

• Japan posted an operating loss of 26.7 billion yen, down from a profit of 56.4 billion yen a year ago on higher costs and the effects of exchange rates on vehicles exported from Japan to other markets. Nissan's sales in Japan were down just 0.2% from a year ago, to about 155,000 vehicles. 
• North America's operating profit of 35.9 billion yen was roughly flat from a year ago despite a 7.5% decline in retail sales to about 425,000 vehicles. The story is simple and good: Incentives are down -- a big change for Nissan in the U.S. -- and average transaction prices are up. Ma said that improved quality of sales in the U.S. is a primary focus for his team right now. Dealer inventories are still high, but lower from the prior quarter.
• Nissan's operating margin in North America was 2.9%, up 0.1 percentage point from a year ago.

The compact Rogue crossover is Nissan's best-seller in the U.S. Sales were down 12.2% this year through September, but increased 2.4% in the third quarter versus the year-ago period. Image source: Nissan Motor. 

• Europe posted a lower operating loss, 10.1 billion yen versus a loss of 12.2 billion yen a year ago. Again, the improvement happened despite a decline in sales, as Nissan's European sales fell 23% to about 130,000 vehicles.  
• Asia (including China) posted an operating profit of 11.2 billion yen, down 48.8% from the prior-year period. Sales in the region rose 11.3% to about 466,000 vehicles, driven by a 14.3% increase in sales in China. Nissan's pricing has been under pressure in the region, and sales of more profitable premium models have slumped.

Nissan is in the midst of a global restructuring effort that includes over 12,000 job cuts, but Ma said that Uchida is likely to review the plan and the automaker's business targets after he takes the helm in December. 

Looking ahead: Nissan cut its full-year guidance

Citing its larger-than-expected sales decline and growing concerns about exchange rates, Nissan cut its guidance for the fiscal year that will end on March 31, 2019. For the full year, management now expects:

• Sales of about 5,240,000 vehicles. (Prior guidance: 5,540,000. Fiscal 2018 result: About 5,516,000.)
• Net revenue of about 10.6 trillion yen. (Prior guidance: 11.3 trillion yen. 2018: 11.57 trillion yen.)
• Operating profit of 150 billion yen with a 1.4% margin. (Prior guidance: 230 billion yen with a 2% margin. 2018: 318.2 billion yen with a margin of 2.75%.)
• Net income of 110 billion yen. (Prior guidance: 170 billion yen. 2018: 319.1 billion yen.)
• Exchange rates of 107 yen per U.S. dollar and 120 yen per euro. (Prior guidance: 110 yen per dollar and 129 yen per euro.)