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Nissan Profit Forecast Misses Estimate on Yen, U.S. Outlook (1)

May 12 (Bloomberg) -- Nissan Motor Co., Japan’s second- biggest carmaker, forecast profit that missed analysts’ estimates, as intensifying competition drives up incentive spending in the U.S.

Net income will climb 4 percent to 405 billion yen ($4 billion) in the year ending March 31, the highest since the 2008 fiscal year, the Yokohama, Japan-based company said in a statement today. That’s about 5 percent below the average of 20 analyst estimates compiled by Bloomberg.

Nissan joins Toyota Motor Corp. and Honda Motor Co. in predicting smaller profits than analysts estimated, as the benefits from a weaker yen fade and Japanese automakers brace for a record decline in domestic demand because of the nation’s first sales-tax increase in 17 years. Chief Executive Officer Carlos Ghosn also faces incentive spending levels that are higher than the average of Asian auto brands in the U.S.

“Everybody seems to be conservative in their forecasts,” said Koji Endo, a Tokyo-based analyst at Advanced Research Japan. “The yen is stabilizing, the competition in the U.S. is getting fierce and the domestic market will decline this year.”

Nissan forecasts global deliveries will climb 8.9 percent to 5.65 million vehicles this fiscal year, representing a global market share of 6.7 percent, according to its statement. Revenue will rise 3 percent to 10.79 trillion yen, while operating profit will gain 7 percent to 535 billion yen, the company said.

Dividend Forecast

Nissan is basing its forecasts for the current fiscal year on exchange rates of 100 yen to the dollar and 140 yen to the euro. The company plans to make dividend payments of 33 yen per share in the current fiscal year, representing 30 percent of net income, up from 25 percent last year.

The automaker has set the goal of achieving an 8 percent operating margin by March 2017 and 8 percent global market share.

“When you see your main competitors are not announcing great results for 2014 you have to be cautious, because they expect the market to be very competitive,” Ghosn said at a briefing today. “You have to be careful of what are the measures they are going to use on the market in order to deliver on their results.”

Nissan’s share price fell 0.2 percent to 869 yen at the close of trading in Tokyo today, before the earnings announcement. The stock has declined 1.7 percent this year, compared with the 11 percent drop in the benchmark Topix Index.

Currency Edge

Like other Japanese carmakers, Nissan has benefited from Prime Minister Shinzo Abe’s economic policies, which helped weaken the country’s currency by about 18 percent against the dollar in 2013 and conferred an advantage over other automakers like General Motors Co. and Hyundai Motor Co.

That edge is eroding as the yen has risen about 3 percent against the dollar this year. The Japanese currency will weaken to 110 versus the dollar by the end of 2014, according to the average estimate compiled by Bloomberg. It traded recently at about 102.

For the fiscal year that just ended, Nissan’s net income rose 14 percent to 389 billion yen, beating its reduced forecast and analysts’ estimates on better-than-expected fourth-quarter results.

In the January-to-March quarter, net income reached 114.9 billion yen, compared with analysts’ estimate of 99.9 billion yen. Operating income climbed to 197.7 billion yen, while sales reached 3.2 trillion yen.

Management Changes

The company in November cut its annual net income forecast by 15 percent, blaming higher-than-expected incentives in the U.S., poor execution and slower growth in emerging countries. Ghosn, who’s also CEO of Renault SA, axed the chief operating officer role -- the company’s No. 2 position -- among the dozens of executive changes he made. He also reorganized operations to six regions from three, breaking out markets such as China, to enhance execution.

In the U.S., Nissan overcame production delays with models including the top-selling Altima, boosting sales in the year ended March by 13 percent -- faster than growth at Toyota or Honda -- as it doled out higher incentives than most Asian rivals.

Nissan has been striving to bring discipline to selling and marketing costs after the November cut in profit forecasts and reshuffled management. Still, incentives in the U.S. rose 5.3 percent to $2,572 per vehicle in the first 4 months this year, according to market researcher Autodata.

The main priority for Nissan in the second half of its current mid-term plan is to boost operating margin in North America “way above” 8 percent, Ghosn said.

U.S. Incentives

Honda, whose ratio of sales in the U.S. is the highest among Japan’s three biggest carmakers, raised average incentives by 38 percent to $2,021, compared with an 10 percent rise at Toyota and the industrywide average of a 6 percent increase.

Nissan’s marketing expenses “got out of control and warranty costs damaged earnings further,” Kurt Sanger, an analyst at Deutsche Bank AG, wrote in a report last month. “Performing magic in North America will not be easy as in our view the product cycle has peaked.”

In China, its largest market, Nissan is targeting a 10 percent market share and said it expects deliveries in the country to climb to more than 1.4 million units this year. China accounts for a quarter of Nissan sales by volume.

China Factory

This year the carmaker will start production at a new plant in Dalian in northeastern China. The factory will have an initial annual production capacity of 150,000 units, which can be expanded to 300,000. The automaker will also start producing the premium Infiniti Q50 and QX50 vehicles in central Hubei province and will probably produce the Q30 compacts in China in the future, Andy Palmer, Nissan chief planning officer, said in an interview in Beijing last month.

Nissan may build its next new plant in China or North America if demand keeps rising, though that will likely happen only after 2016, according to Ghosn.

Back home in Japan, Nissan boosted domestic deliveries by 11 percent in the year ended March on sales of new minicars developed with Mitsubishi Motors Corp.

The country’s carmakers face a pullback in consumer spending after the nation’s first increase in the consumption tax since 1997. The increase in the levy, which took effect on April 1, contributed to a 5.5 percent drop in industry sales last month. Nissan’s monthly non-minicar deliveries fell 21 percent in April.

Nissan started selling the low-cost Datsun brand in India in March. Sales of Datsun Go, the first model under the resurrected brand, helped Nissan’s India sales rise more than four-fold to 5,300 units in April. The company is also counting on Datsun to boost deliveries in Indonesia and Russia after sales begin this year.

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