Isuzu Motors Ltd
TSE:7202
Earnings Call Analysis
Q3-2024 Analysis
Isuzu Motors Ltd
Isuzu Motor Limited faced a turbulent period during the third quarter of the fiscal year ending March 31, 2024. While the company grappled with deteriorating market conditions in emerging economies and fluctuating material prices, it also dealt with severe market conditions for its commercial and light commercial vehicles (CVs and LCVs) segments. Despite these challenges, Isuzu managed to post profits that increased year-on-year, buoyed by effective price realization, a favorable weaker yen exchange rate, and robust after-sales growth. These factors helped the automaker to record historic high net sales across all profit levels for the first nine months.
Unit sales in advanced economies saw some recovery for Isuzu's commercial vehicles thanks to easing component shortages. However, sales in emerging markets took a significant downturn. For light commercial vehicles, severe market conditions particularly impacted the Thai domestic market with sharp declines, though export shipments grew, mainly due to clearing prior backlogs. The overall picture was mixed, with increased market share in Japanese truck segments contrasting with global challenges.
For the fiscal year ending March 31, 2024, Isuzu adjusted its sales volume forecast downwards from previous projections made in November, primarily due to market headwinds and production delays of new models. Nevertheless, the company maintains its full-year operating income forecast at JPY 280.0 billion, anticipating that cost reduction efforts and continued price adjustments, alongside currency tailwinds, will counterbalance lower sales volume forecast adjustments.
The intricate financial web for Isuzu paints a story of careful management amidst adversity. For the nine months ending March 31, 2024, operating income grew by JPY 55.7 billion compared to the prior fiscal year, despite decreased unit sales. This increase is attributed to a strategic mix of destination and model changes, successful pricing strategies, and cost reductions. The value of the yen provided an unexpected boon, contributing positively to the financial outlook.
Delving deeper into financial outcomes, Isuzu's ordinary income stood at JPY 270.2 billion, shaped by various gains and equity method accounting. Net income was marked at JPY 159.4 billion, after accounting for income taxes and noncontrolling interests. The company's full-year forecast anticipates ordinary income at JPY 300.0 billion and a net income of JPY 165.0 billion, even after accounting for business restructuring and impairment losses. Interestingly, extraordinary losses connected to their business in Russia remained static since the previous quarter.
Isuzu's results for the troubling third quarter reveal a company striving to navigate a challenging economic landscape. Amid market fluctuations and supply chain interruptions, Isuzu has strategically offset declining sales volumes with intelligent pricing, market share gains in core segments, and cost control. Investors can draw confidence from the company's resilience and its firm guidance on operating and net income, positioning Isuzu as a stalwart in this time of uncertainty.
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Thank you very much for attending today's presentation of Isuzu Motor Limited's financial results for the third quarter of the fiscal year ending March 31, 2024. Allow me to introduce the Isuzu members. This is Naohiro Yamaguchi, Director of the Board and Senior Executive Officer, Group CFO, and Executive Vice President of the Corporate Strategy Division and Corporate Planning and Finance Division.
I'm Yamaguchi.
My name is Fumiya Yamakita, Vice President of the Corporate Planning and Finance Division. First, Mr. Yamaguchi will discuss the general overview of the business, while I, Yamakita, will present the financial results for the third quarter of the fiscal year ending March 31, 2024.
I am Yamaguchi. I will briefly explain the overview of our business. First are the results for the third quarter, the first 9-month performance. On the profit and loss front, profits increased year-on-year, thanks to price realization, the weaker yen, and growing after sales, despite deterioration in market conditions, especially in emerging countries and fluctuations in material prices, et cetera. As a result, net sales in all profit levels for the first 9-month period marked an all-time high.
Turning to unit sales of CVs. The sales volume to advanced economies increased due to improvements in component shortages, while those 2 emerging economies declined significantly due to deteriorating market conditions. As for LCVs, unit sales for Thailand decreased sharply due to severe market conditions, while the number of export shipments increased mainly due to delivery of backlogs.
Next is the outlook for the fiscal year ending March 31, 2024. In light of the severe market conditions for both CVs and LCVs, the sales volume forecast is adjusted downward from the forecast made in November. Due in part to a delay in the production establishment of new models, sales of some domestic CVs are pushed back to the next fiscal year. As for profit and loss, the full year forecast for operating income of JPY 280.0 billion remains the same as we expected steady progress in price realization and cost reduction activities, in addition to the weaker yen would absorb the downward revision of the sales unit projection.
Now here is the summary of the cumulative consolidated results for the 9 months of the fiscal year ending March 31, 2024. As I mentioned at the beginning, unit sales of both CVs and LCVs decreased from the same period last year. The financial results are described in the bottom table. I now turn to the full year unit sales and financial outlook for this fiscal year. The full year outlook in unit sales for CVs, for Japan and overseas markets, and LCVs for export markets have been revised downwards from the previous full year outlook.
On the other hand, as mentioned at the beginning, the financial outlook remains unchanged for sales in all profit levels. That's all from me.
Next, I, Yamakita, will explain the results for the third quarter and the full year outlook for the fiscal year ending March 31, 2024. Now I will talk about the global CV unit sales. The CV unit sales in Japan and North America increased due to improvements in part shortages, but the total global CV unit sales decreased due to the rising interest rates and inflation in regions such as Asia.
Next, I will touch on the full year outlook of the total global CV unit sales. This is a comparison between the revised full year outlook and the previous one announced in November 2023. The unit sales for the Japanese market have been revised downward because part of the unit sales projected in the previous full year outlook has been moved back to the next fiscal year caused by a delay in production establishment of new vehicle models and a prolonged lead time to sales longer than our assumptions. Also, the overseas CV unit sales have been revised downward due to severe market conditions seen in markets such as China and Asia.
Now I will explain the results of industry sales and our market share in Japan in the first 9 months of the fiscal year ending March 31, 2024. Industry sales for both the heavy and medium duty and light duty truck segments for Isuzu and our competitors recovered as the part shortage situation continue to ease. The Isuzu market share in both truck segments also increased, thanks to the east part shortages.
Next, let us now look at global LCV unit sales. The unit sales for the first 9-month period in the Thai domestic market was significantly lower than that of the same period last year due to severe market conditions, while unit sales for export markets increased, driven by execution of backlogs, which had accumulated due to part shortages in the previous fiscal year.
Now I will turn to a comparison of the full year outlook of global LCV unit sales between the previous and the latest full year outlook. Although the recent demand for the Thai domestic market is weaker than expected, the forecast for unit sales remains unchanged from the previous outlook as transition of emission regulations is scheduled in April. The unit sales for export markets have been revised downwards due to worsening market conditions in Asia and Africa and the backlog clearance in Oceania.
I will explain LCV industry sales, our market share, and production units in Thailand for the first 9-month period. Industry sales dropped significantly compared to that of the previous fiscal year due to deteriorating market conditions. However, we maintained a high market share continuing from the previous fiscal year. Although production volume increased for export markets due to the high level of backlogs, production for the time market saw a significant drop, resulting in an overall decrease from the previous fiscal year.
Now I will touch on industrial engines and after sales business. Global industrial engine shipments fell from the previous fiscal year due to market slowdowns in China. Also, we lowered our full year forecast affected by part shortages in the fourth quarter of the fiscal year ending March 31, 2024. On the other hand, revenue from the after sales business increased capturing demand mainly in Japan. We also revised our full year forecast upwards.
Next, I'll discuss the analysis of changes in operating income by comparing the variances between the first 9 months of the fiscal year ended March 31, 2023, and those of the fiscal year ending March 31, 2024. Although the unit sales decreased, the operating income increased by JPY 55.7 billion from the previous fiscal year, which is attributable to the improvement in the destination and model mix, accumulation of revenues from the after-sales business, successful price realization, and effective cost reduction activities. The exchange rates are shown in the upper right table.
I will now turn to the financial results of operating income and beyond. Ordinary income was JPY 270.2 billion. After adding and subtracting the share of profit of entities accounted for using the equity method, foreign exchange gains and others to the operating income of JPY 253.6 billion. Net income was JPY 159.4 billion after adding and subtracting items such as income taxes and profit attributed to noncontrolling interest from the ordinary income of JPY 270.2 billion. Please note that we recorded in the first quarter, JPY 2.2 billion of extraordinary loss related to the transfer of our business operations in Russia. And nothing on this matter has changed since then.
Next, I will explain the analysis of changes in our full year operating income outlook for the fiscal year ending March 31, 2024, compared with the full year result of the previous fiscal year. Our full year outlook for operating income remains unchanged from the previous forecast of JPY 280.0 billion, as we expected the negative impact from unit sales decreases will be offset by steady progress of price realization and cost reduction activities as well as the positive impact of the weaker yen.
I will now touch on the financial outlook beyond the operating income. Ordinary income is expected to be JPY 300.0 billion after adding and subtracting the share of profit of entities accounted for using the equity method, foreign exchange gains and others to the operating income of JPY 280.0 billion. Net income is expected to be JPY 165.0 billion, after adding and deducting items such as the following ones from the ordinary income of JPY 300.0 billion, income taxes, profit attributable to noncontrolling interest, loss on business restructuring of IJTT of JPY 6.0 billion, and impairment loss on production facilities of a subsidiary in China of JPY 4.0 billion.
This is the end of Isuzu Motor Limited's financial results briefing for the third quarter of the fiscal year ending March 31, 2024. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]