Toyota seen forecasting smaller FY loss on cost cuts

A Toyota Motor Corp logo and the reflection of an earth-shaped balloon is seen on the company's hybrid vehicle, at a showroom in Tokyo in this July 16, 2009 file photo.

TOKYO (Reuters) - Toyota Motor Corp is expected to reduce its annual loss forecast on Thursday as sales and cost-cutting exceed its plans, putting it on track to follow Japanese rivals into the black next year.

Toyota, the world's biggest automaker by sales, will wrap up an earnings season dominated by rosier projections from Japanese automakers despite the damaging rise in the yen.

The industry has gotten a sales boost from government-backed incentives and drastic cost reductions to weather the worst economic crisis in generations.

On Wednesday, Toyota rattled the motor sports world by saying it has quit Formula One racing to put its annual budget of around $300 million to better use.

Toyota, until two years ago the world's most profitable automaker, is likely to be the only top Japanese carmaker to post a loss in the July-September quarter when it announces its results after the market closes on Thursday.

Even struggling U.S. rival Ford Motor Co reported a quarterly profit this week, defying Wall Street estimates as it seized market share from rivals General Motors Co and Chrysler.

Toyota is suffering from severe overcapacity after years of building new factories to meet demand before the financial crisis hit.

The stronger yen, which eats into profits made abroad, has dealt a double-blow because Toyota exports more than half of its vehicles built in Japan.

Toyota is expected to post an operating loss of 63 billion yen ($695 million) for the July-September quarter, according to the average forecast of five analysts polled by Thomson Reuters I/B/E/S.

For the year to March, 22 analysts expect a loss of 293 billion yen, far better than Toyota's current forecast of 750 billion yen.

WORK ON CHINA

The second-quarter earnings would mark a huge improvement from the previous quarter's 194.9 billion yen loss, as Toyota gradually ramped up production in Japan, where demand for its Prius and other hybrid cars has shot up thanks to generous tax incentives.

But with the outlook for global demand uncertain next year as government stimulus measures run out, Toyota is aiming to boost manufacturing efficiencies to be able to break even using just 70 percent of its parent-only output capacity.

Analysts expect capacity utilisation to improve regardless, with Toyota exiting a 400,000 units-a-year factory in California that it had held jointly with GM.

On Wednesday, domestic rival Nissan Motor Co revised its annual outlook to a profit from a loss as soaring sales in China helped it grab a bigger slice of the fast-growing market.

While red-hot demand in China has been a boon for all brands, Toyota's sales growth there has lagged the overall market's due to a dearth of smaller models that qualify for Beijing's tax incentives introduced this year.

To better cater to local demand, Toyota plans to spend 30-40 billion yen ($330-440 million) to build a research and development centre in China as early as next year, the Nikkei business daily reported on Thursday.

The new facility, to be built on the outskirts of Shanghai, is part of the automaker's efforts to expand its business in China, which this year topped the United States as the world's biggest auto market, the Nikkei said.

Toyota said it was checking the report.

Shares of Toyota lost 2.7 percent during its second quarter, underperforming the main Nikkei average, which rose 1.8 percent.

Its shares were flat at 3,610 yen at the midday break, against the Nikkei's 1.2 percent fall.

(Reporting by Chang-Ran Kim and Taiga Uranaka; Editing by Chris Gallagher)

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