(MCO) Moody’s Casts Shadow on Toyota Motor

Moody’s Investors Service, the credit rating arm of Moody’s Corp. (MCO), has cut the credit rating for Toyota Motor Corp. (TM) by one level to Aa3 on the back of its weakening market position and difficulties in operations emanating from the earthquake and tsunami in Japan on March 11.

Moody’s has warned the company of another downgrade given the deteriorating conditions in the Japanese economy after the earthquake. Production in Japan slashed 54.4% in May, resulting in a 55.7% fall in domestic sales.

Toyota revealed that it expects to gear up its production level from 90% of normal to near full level in July and be in full swing by the end of the year. The automaker plans to make up for the lost production in Japan by manufacturing an additional 350,000 cars and trucks from October through March 2012.

Recently, Toyota released its guidance for the fiscal year ended March 31, 2012. The company expects the full year profit to fall 31% to ¥280 billion ($3.5 billion) from ¥408 billion a year ago driven by lower sales on the back of earthquake and tsunami in Japan and stronger yen.

The Zacks #3 Rank (Hold) company has projected global sales to decrease to 7.24 million vehicles from 7.31 million vehicles in fiscal 2011, which will reduce earnings by ¥120 billion. The automaker revealed that strong yen will reduce the yearly profit by ¥100 billion.

Toyota has already lost its position as the world’s biggest car maker to General Motors Company (GM) and Volkswagen AG in the first quarter of the year. Therefore, the company’s sluggish recovery in profits may worsen its position going forward.

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