Mazda’s profits fall in Q1 2015 due to high marketing, startup costs

Article by Christian A., on April 29, 2015

Mazda Motor Corp.’s sales may have increased during the first three months of 2015; however, its profits still fell due to higher marketing and factory startup costs as well as foreign exchange losses. Mazda, which relies heavily on exports, has forecasted that its annual net income will drop 12% for the present fiscal year due to higher taxes and the continuing rise of expenses at overseas factories.

CEO Masamichi Kogai has announced new mid-term goals through the fiscal year that ends March 2019. The automaker’s “Stage 2” of its structural reforms aims for an 18% rise in global sales to 1.65 million units, from 1.397 million in the fiscal year that recently ended.

Mazda released a statement that in the fiscal fourth quarter that ended March 31, its global operating profit dropped by 11% to 50.9 billion yen ($425.5 million). In the quarter, the Japanese brand’s net income slipped 53% to 27.3 billion yen ($228.2 million).

Mazda recorded these reversals even when its global revenue rose 12% to 840.3 billion yen ($7.02 billion) and as its global sales climbed 4.2% to 394,000 vehicles. The factors that hurt its quarterly profit were a higher tax bill and huge outlays to hasten the output at its new assembly factory in Mexico and a new transmission plant in Thailand.

Furthermore, Mazda spent a lot to market and promote the redesigned Mazda2 hatchback and CX3 crossover. The automaker also felt the sting of foreign exchange losses. In the previous quarters, the weakening yen had actually boosted earnings. However, in the fourth quarter, the increase of the yen against several foreign currencies, such as the ruble and euro, led to a 1.9 billion yen ($15.9 million) foreign exchange rate loss.

In North America (Mazda’s largest market), sales grew 2.9% to 105,000 units in the fourth quarter to round up the fiscal year and ending up with a 9% increase to 425,000 vehicles.

Even with unfavorable figures in the fourth quarter, Mazda was still able to achieve record full-year results in each earnings category with the exception of revenue for the fiscal year that ended on March 31.

Its operating profit had an 11% growth to a record-setting 202.89 billion yen ($1.70 billion). Meanwhile, its net income increased by 17% to set an all-time high of 158.81 billion yen ($1.33 billion). This marks the second consecutive year of record-breaking earnings in these two categories.

Most of the earnings improvement in the latest fiscal year had been contributed by North America, which saw its operating profit increase to 37.9 billion yen ($316.8 million). Until 2014, Mazda had been suffering losses in North America.

Last year, it was able to report a measly profit of 1.3 billion yen ($10.87 million). Its global revenue rose by 13% to 3.03 trillion yen ($25.36 billion), helped by a 5% boost in its worldwide sales to 1.397 million vehicles.

Mazda also set record global sales, which were at their highest since sales of 1.363 million units in the fiscal year ended March 31, 2004. Kogai shared that its net income will probably fall 12% to 140.0 billion yen ($1.17 billion) in the present fiscal year that ends March 31, 2016.

The automaker anticipates that a higher tax bill will negatively affect profits after struggling under years of red ink. Its operating profit is likely to climb 4%. The brand forecasts that its revenue will grow by 7% to 3.250 trillion yen ($27.17 billion) while global sales will increase by 7% to 1.490 million units.

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