Toyota Q1 drops, keeps outlook amid U.S. slump

By Chang-Ran Kim, Asia Autos Correspondent

TOKYO (Reuters) - Toyota Motor Corp, the world's biggest automaker, posted a 28 percent drop in quarterly net profit, dented by a strong yen and slumping U.S. sales, and kept its forecasts unchanged for what is set to be its most challenging year in recent memory.

"The environment surrounding our business has taken a sharp turn for the worse, leading to a very tough first quarter," Executive Vice President Mitsuo Kinoshita told a news conference. "It will be crucial for us to act quickly and flexibly to overcome this."

While sales in China, Russia and the Middle East are growing faster than anticipated, Toyota and other automakers face a downward sales spiral in North America, Western Europe and Japan, a weaker dollar that drags on earnings, and dearer raw materials.

Toyota last month cut its 2008 global production and sales forecasts and outlined plans to mothball North American factory lines building light trucks such as the Tundra pick-up, which the carmaker had called its most important product ever for the United States when it was launched last year.

A slump in demand for gas-guzzlers amid record high fuel prices has also forced automakers in the United States to set aside big provisions for a slide in the resale value of the unpopular vehicles.

The U.S. crunch also hit the first-quarter results of Japanese rivals Honda Motor Co and Nissan Motor Co.

Toyota said it booked provisions of 9 billion yen -- significantly lower than Nissan's 42 billion yen and less than half what Honda set aside -- saying the resale value of its vehicles had suffered less than those of its rivals. Toyota's April-June net profit was 353.66 billion yen ($3.2 billion), down from a record 491.5 billion yen a year earlier but higher than an average estimate of 319.5 billion yen from seven brokers surveyed by Reuters Estimates. It was the first fall in April-June profit in three years.

Operating profit, which excludes earnings in China, fell 39 percent to 412.6 billion yen -- lagging a consensus estimate of 432.8 billion yen. Revenue fell 4.7 percent to 6.2 trillion yen.