Mazda slumps to operating loss amid falling sales, rising costs

TOKYO — Mazda slumped into the red in the most recent quarter, broadsided by falling global sales, suspended production in Japan, unfavorable foreign exchange rates and increased investment in its U.S. retail network reforms.

The automaker booked an operating loss of 2.2 billion yen ($19.4 million) in the fiscal second quarter ended Sept. 30, the Japanese automaker said on Wednesday in its quarterly earnings report. The downturn reversed a quarterly operating profit of 36.6 billion yen ($322 million) a year earlier.

Net income tumbled 86 percent to 3.8 billion yen ($33.4 million) in the July-September period.

Revenue flatlined at 856.0 billion yen ($7.53 billion), as worldwide retail sales declined 3 percent to 392,000 units in the three months, losing ground in North America, Japan and China.

Results were hammered by numerous factors. Declining sales were triggered partly by interrupted supply from Japan, where Mazda suspended production following heavy rains that caused flooding throughout the region of western Japan where Mazda is based.

Mazda lost production of 44,000 complete vehicles and 23,000 knockdown kits for overseas assembly because of the rains, Managing Executive Officer Tetsuya Fujimoto said while announcing financial results. Sales dropped by 22,000 units because of the disaster, and Mazda booked an 18.0 billion ($158.3 million) charge on the lost sales and production.

Increased incentives further undermined profitability in the quarter.



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Meanwhile, the Japanese yen’s appreciation against the U.S. dollar and other currencies took another bite. Exchange rates cut 6.2 billion yen ($54.5 million) off the quarterly operating profit.

Mazda also cited higher outlays for compliance with European environmental regulations and recall-related costs. It also ramped up spending to overhaul its U.S. retailing network.

Mazda spent 5 billion yen ($44 million) in the second quarter on the U.S. retail revamp.

CEO Akira Marumoto, who took office in June, says his highest priority is spurring growth in the U.S., the automaker’s biggest market. To do that, he wants to focus on strengthening Mazda’s U.S. dealer network and making the most of its growing partnership with Toyota.

Mazda is trying to upgrade its dealer network before it opens a new plant it is jointly building in Alabama with Toyota. Slated to open in 2021, the $1.6 billion plant will add 150,000 units of capacity to Mazda — all of which will be devoted to a new crossover for the U.S.

Mazda expects U.S. sales to soar after that, with the plant eventually enabling the automaker to sell 2 million vehicles globally, from 1.7 million expected this year.

In the latest quarter, North American retail sales declined 5 percent to 106,000 units. Regional operating profit climbed 80 percent to 22.9 billion yen ($201.4 million) in the fiscal first half.

European retail sales remained unchanged at 68,000 vehicles in the three-month period. In the first half, Mazda’s regional operating profit grew 69 percent to 6.1 billion yen ($53.7 million).

Mazda cut its earnings outlook for the current fiscal year ending March 31, 2019.

It now expects operating profit to fall 52 percent to 70 billion yen ($615.8 million), a sharper drop that its earlier forecast for a 28 percent decline.

Net income is seen plunging 55 percent to 50 billion yen ($439.8 million), also a more severe downturn than the 29 percent decline predicted earlier.

Mazda expects global retail sales to decline 1 percent to 1.62 million vehicles. North American volume is forecast to stay flat at 434,000 vehicles, while Europe also holds steady at 270,000.

Naoto Okamura contributed to this report.

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