Nissan profits fall on foreign exchange losses, onetime costs

UPDATED: 5/14/18 9:44 pm ET -- corrected

Editor"s note: Nissan has corrected quarterly global and North American operating profit figures that had been issued to Automotive News. This report has been updated.

YOKOHAMA, Japan -- Nissan Motor Co. reported a 12 percent slide in operating profit in the most recent quarter as foreign exchange rate losses, deteriorating sales mix and onetime costs for dealing with a vehicle inspection scandal in Japan offset only meager volume gains.

Operating profit declined to 210.5 billion yen ($1.98 billion) in the fiscal fourth quarter ended March 31, the company announced in its May 14 earnings report.

Net income fell 32 percent to 168.8 billion yen ($1.59 billion) in the January-March period.

Revenue dipped 0.9 percent to 3.42 trillion yen ($32.2 billion), as worldwide sales advanced 1.7 percent to 1.7 million vehicles in the three-month period.

Nissan"s results were hit by the yen"s appreciation against the U.S. dollar and other currencies. The company also booked a 20 billion yen ($188.3 million) charge for the faulty final inspections that hammered the company in the domestic market last year. Falling wholesale volume and deteriorating mix lopped off another 48.1 billion yen ($452.8 million) in the quarter.

Still, Nissan was able to make some progress on reining in marketing and selling expenses, a top priority for CEO Hiroto Saikawa. He is pivoting the company away from profit-draining fleet sales and incentives in the U.S. in an attempt to shore up brand value and margins.

Cutbacks on the outlays boosted global operating profit by 40 billion yen ($376.6 million).

Still, operating profit in North America, Nissan"s biggest sales center, declined 15 percent to 100.4 billion yen ($945.2 million) in the fiscal fourth quarter.That contrasts with a 30 percent drop in North American operating profit for the full fiscal year.

The decrease in quarterly regional profit came as North American sales volume retreated 3 percent to 530,923 vehicles in the January-March period, on declines in the U.S. and Mexico.

Saikawa said Nissan was prepared to sacrifice some volume to bolster margins.

"In the medium term, of course, we want to aim for further growth in the U.S. market," Saikawa said at the company"s global headquarters while announcing financial results.

"But in the short term, including this fiscal year, profitability has to be improved. That is the most salient point. I want to be very clear on that. Profitability recovery is the largest point."

Nissan said it also made progress in reducing global inventory. The worldwide backlog of unsold vehicles shrank to 880,000 units in March, from 990,000 in January, it said.

North America progress

Tasked with engineering the turnaround in North American profitability is Denis Le Vot, the Frenchman from Renault who took over as chairman of North America Jan. 16.

Nissan has been making gradual progress.

Indeed, Nissan"s average incentive spending rose 13 percent to $4,215 per vehicle in 2017 and rose 2.4 percent in December to $4,572, according to figures from Autodata Corp.

But spiff outlays dropped 4.3 percent to $3,837 in the first four months of 2018, even as the industry average climbed 5.8 percent to $3,721 in the period. And in April, Nissan"s incentives tumbled 21 percent to $3,100 per vehicle, below the industry average.

Saikawa says Nissan can begin restoring profitability once supply is rebalanced.

For starters, a rush of new products should help Nissan suppress incentives. New offerings arriving this year include the redesigned Leaf EV, the next-generation Altima sedan, the Kicks subcompact crossover and the Infiniti QX50 crossover. An updated Sentra is also expected soon.

Chief Performance Officer Jose Munoz said the new products will bolster Nissan"s business in the latter half of the current fiscal year and help the company shift its lineup more toward the white-hot light-truck segment. Light trucks accounted for 56 percent of Nissan and Infiniti sales through April. But industrywide, they accounted for 68 percent of overall demand.

Full-year decline

On a full-year basis, Nissan"s operating profit declined 23 percent to 574.8 billion yen ($5.41 billion) in the 12 months ended March 31, 2018.

Net income, by contrast, climbed 13 percent to a record 746.9 billion yen ($7.03 billion).

But the all-time high net income was delivered in part by U.S. tax breaks, which reduced the corporate rate to 21 percent from 33 percent starting Jan. 1.

Global revenue increased 2 percent to 11.95 trillion yen ($112.5 billion) in full year, as worldwide sales advanced 2.6 percent to a record 5.77 million vehicles.

Europe swung back into the black, reporting a regional operating profit of 14.33 billion yen ($134.9 million) in the full fiscal year, reversing an operating loss of 25.19 billion yen ($237.1 million) the year before. European sales decreased 2.6 percent to 756,000 vehicles in the 12 months.

Looking ahead, Nissan predicted operating profit would decline 6 percent in the current fiscal year ending March 31, 2019, undermined by a deteriorating foreign exchange rate.

Net income is seen falling 33 percent, without the previous year"s onetime gain from U.S. tax reform. Meanwhile, global sales are forecast to increase 2.7 percent to 5.93 million vehicles.

In recent months, the yen has turned on Nissan. Now the company is fighting unfavorable exchange rates and plateauing demand in its biggest market, the U.S.

Brand value

Saikawa"s global midterm business plan through 2022 largely eschews the detailed numerical targets favored by his predecessor, Carlos Ghosn, who remains chairman of Nissan.

Ghosn set the difficult and controversial mission of raising Nissan and Infiniti"s combined U.S. market share to 10 percent by March 31 of 2017 -- a goal Nissan achieved by a whisker despite criticism and warnings from competitors, dealers and outsiders around the industry.

Through April, Nissan"s share had dropped to 9.2 percent, from 9.9 percent a year earlier. Nissan North America"s sales declined 6.5 percent to 503,767 vehicles in the first four months, even as the overall U.S. industry managed to eke out a meager 0.2 percent increase.

In April, U.S. sales slumping 28 percent to 87,764 cars and light trucks. The company simultaneously pulled back from its normal volume of fleet deliveries and began easing pressure on dealer sales incentive programs, all while overall U.S. light-vehicle market softens.

Only one Nissan nameplate -- the newly redesigned electric Leaf -- posted a sales gain.

But Saikawa says he"s not talking numbers.

Saikawa wants a "technology-driven value up" under the banner of "intelligent mobility," a Nissan"s buzzword that encompasses autonomous driving, electrification and connectivity.

In Japan, Nissan has caught upward momentum with such next-generation gadgetry as its ProPilot autonomous driving system, its e-Pedal accelerator-cum-brake application and its e-Power range-extender hybrid -- not to mention the Leaf electric vehicle.