TOKYO -- Profits surged at Subaru Corp. in the latest quarter as the U.S. shift to crossovers and light trucks powered rising demand for the brand’s signature all-wheel-drive lineup.
Operating income climbed 18 percent to 119.34 billion yen ($1.06 billion) for the company’s fiscal first quarter ended June 30, the carmaker said Thursday, while announcing results.
Net income increased 4.4 percent to 82.33 billion yen ($732.9 million) in the period.
Revenue advanced 11 percent to 854.77 billion yen ($8.90 billion) in the April-June period, driven by an 11 percent increase in worldwide sales to 271,300 vehicles.
In announcing the financial results, CFO Toshiaki Okada said Subaru was able to keep sales growing in the U.S., the company’s biggest market, despite cooling overall demand by tailoring new products to better match American tastes. Improvements to the retail network also helped.
"There is a shift to SUVs from sedans," Okada said. "In that sense, that is a tailwind for us. As we mainly focus on SUVs, the growing popularity of SUVs is a good thing for us.”
North America, which accounts for about 70 percent of Subaru’s global sales, underpinned the expansion in Subaru’s first-quarter profits. Regional in North America grew 11 percent to 189,000 vehicles. Canada sales grew by just 100 units to 15,500 vehicles in the quarter.
Business in Japan backed the worldwide sales advance, with volume in the home market climbing 30 percent to 40,500 vehicles in the three months. European sales declined 4.2 percent to 10,000 vehicles, while Subaru volume in China posted a 16 percent tumble to 8,000 units.
Modest gains from the Japanese yen’s depreciation against the dollar strengthened profits by 1.6 billion yen ($14.2 million) in the latest quarter. The foreign exchange impact was a welcome tailwind for Subaru, which in recent years has often been stung by exchange rate losses.
Regional operating profit in North America dipped 2.9 percent to 23.3 billion yen ($207.4 million), while operating profit in Japan surged 40 percent to 93.4 billion yen ($831.4 million).
Rising incentives undercut profits. Average U.S. outlays rose to around $1,800 per vehicle in the latest quarter from $1,050 per vehicle a year earlier, Okada said.
Incentives should continue to increase over the coming year as competition heats up and as consumers react to an expected hike in U.S. interest rates, Okada said. But Subaru should be able to keep its increased spiffs within a reasonable range, he added.
“Overall, our incentives stay within our expected levels,” he said. “For now, we are not going to change our incentive program significantly going forward, as our sales have been good.”
Subaru kept its profit outlook unchanged for the current fiscal year ending March 31, 2018.
Global sales are forecast to expand 3.8 percent to 1.1 million vehicles in the current fiscal year. U.S. volume should increase 3.0 percent to 687,700 units, while Canada climbs 2.8 percent to 54,600. European sales are seen declining 1 percent to 46,000 vehicles.
The trajectory outlook puts Subaru well on its way to its mid-term global sales target of 1.2 million vehicles for the fiscal year ending March 31, 2021.