Earnings call: Mitsubishi Motors reports decline in Q1 profits amid challenges

Mitsubishi Motors (OTC:) Corporation (OTCPK:MMTOF) faced a challenging first quarter in fiscal year 2024, as detailed in their recent earnings conference call. The company reported a decrease in both sales and profits year-on-year, citing intensified sales competition, inflation-related cost increases, and a bump in quality-related expenses.

Despite these headwinds, net sales remained relatively stable at JPY 627.5 billion, while operating profit fell by 21% to JPY 35.5 billion. The automotive market’s demand was sluggish, particularly in core regions, due to a delayed economic recovery.

Key Takeaways

• Net sales were steady at JPY 627.5 billion.
• Operating profit declined 21% to JPY 35.5 billion.
• Retail sales volume held at 194,000 units.
• The company cited increased sales competition and rising costs due to inflation as key challenges.
• Mitsubishi Motors experienced a decline in wholesale volume and operating profit due to delayed shipping arrivals and inventory adjustments.
• Procurement and shipment costs improved by JPY 2 billion.
• R&D expenses increased, contributing to a decrease in operating profit.
• The company reported a favorable currency exchange impact of JPY 24.6 billion.

Company Outlook

• Mitsubishi Motors plans to maintain its forecast, considering the uncertain macroeconomic environment and expected increase in competition.
• The company will continue to focus on the rollout of new models, such as the new Triton and Xforce, and strengthening regional businesses.

Bearish Highlights

• Operating profit impacted by JPY 12 billion due to decreased wholesale volume.
• Sales expenses reduced operating profit by JPY 9.4 billion, mainly due to increased incentives in the U.S. and Thailand.
• Operating profit further decreased by JPY 4.2 billion due to increased R&D expenses.

Bullish Highlights

• Retail sales volume remained stable year-on-year.
• The company saw increased market share in the Philippines, reaching 18.8%.
• Mitsubishi Motors reported a more than 30% increase in sales volume in Australia.

Misses

• Operating profit and ordinary profit decreased by 21% and 31%, respectively.
• Quality-related expenses and general expenses, such as labor costs, increased.

Q&A Highlights

• The company addressed the impact of high inflation and geopolitical risks on its operations.
• Mitsubishi Motors discussed the rollout of the new Triton and Xforce models and their positive reception in various markets.
• The company also highlighted the upcoming launch of the Outlander PHEV in Europe and its potential to strengthen the brand.

In conclusion, Mitsubishi Motors is navigating a period of economic uncertainty and competitive pressure, with a focus on strategic product launches and market share expansion. The company remains cautious but committed to its forecasts, as it braces for the macroeconomic challenges that lie ahead.

InvestingPro Insights

Mitsubishi Motors Corporation (OTCPK:MMTOF) appears to be navigating the turbulent automotive landscape with a mix of challenges and strategic maneuvers. In light of the company’s recent financial performance, several metrics and tips from InvestingPro provide a deeper insight into its current standing and future prospects.

The company is currently trading at a low earnings multiple, with a P/E ratio of 4.64, which suggests that the stock could be undervalued compared to its earnings potential. This is further supported by an adjusted P/E ratio for the last twelve months as of Q1 2025, which stands at an even lower 3.91. Such a valuation might catch the eye of value investors looking for potentially overlooked stocks in the market.

Despite recent setbacks, Mitsubishi Motors holds more cash than debt on its balance sheet, which can be a sign of financial resilience in an industry that often requires significant capital expenditures. Additionally, the company has a high shareholder yield, indicating a commitment to returning value to its investors through dividends and share repurchases.

InvestingPro Tips also highlight that the stock has taken a significant hit over the last week, with a 1-week price total return of -17.67%. While this may raise concerns, it could also present a buying opportunity for investors who believe in the company’s long-term strategy and its ability to recover.

For those interested in exploring more about Mitsubishi Motors’ financial health and investment potential, there are additional InvestingPro Tips available. These include information on revenue valuation multiples, cash flow coverage, and the company’s position within the Automobiles industry. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to a total of 10 InvestingPro Tips that could further inform your investment decisions.

In summary, while Mitsubishi Motors faces headwinds, the company’s financial metrics and strategic positioning suggest areas of strength that could support its journey through current market conditions.

Full transcript – Mitsubishi Motors Corp (MMTOF) Q1 2024:

Mitsubishi Motors Corporation (OTCPK:MMTOF) :

Q1 2024 Earnings Conference Call :

Unidentified Company Representative: Thank you for your participation in our FY‘24 First Quarter Results Meeting. While you’re busy today, the competition environment began to normalize as production constraints due to shortage of semiconductor, et cetera have been resolved and the inventory has been replenished in general, and in our core regions demand for automobile is sluggish due to delayed economic recovery. Therefore, we recognize the overall business environment surrounding us is becoming increasingly severe. As shown in the slide, our results for Q1 2024 showed a decrease in both sales and profits on year-on-year basis due to intensifying sales competition rising costs associated with inflation, and the temporarily increase in quality related expenses. Net sales were JPY627.5 billion, almost the same level as in the previous year, operating profit decreased 21% year-on-year to JPY35.5 billion, and the OPM decreased 1.4 points year-on-year to 5.7%. Ordinary profit decreased 31% year-on-year to JPY42.4 billion and net income was JPY29.5 billion. Retail sales were 194,000 units almost unchanged from the previous year. Please turn to Page 4. In this slide, you can see the factors behind the year-on-year changes in operating profit for Q1 FY’24. In terms of volume and mixed selling price, though we promoted initiatives to improve the net revenue strategy, our wholesale volume declined year-on-year due to delayed shipping arrivals in some regions and inventory adjustments. As a result, operating profit declined by JPY12 billion year-on-year. Sales expenses reduced operating profit by JPY9.4 billion mainly due to an increase in incentives in the U.S. and Thailand in line with intensifying market competition. Procurement cost shipment cost improved JPY2 billion in total as deterioration in factory expenses and shipping cost was reversed by a reduction in procurement cost. R&D expenses increased as planned, resulting in a JPY4.2 billion decrease in operating profit. Other items deteriorated by JPY10.7 billion due to an increase in general expenses such as labor cost due to inflation and an increase in quality cost. Regarding foreign exchange rates, the negative impact of the cost currency tied up was offset by other major currencies such as U.S. dollar resulting in a favorable war effect of JPY24.6 billion. Please turn to Page 5. I’d like to explain about our global sales volume for the first quarter, 2024, compared to the previous fiscal year retail sales volume in regions other than North America is generally on an increasing trend. The significant decrease in sales in China and other areas was due to the impact of structural reforms implemented in FY2023. I would like to explain the situation by region on Page 6. First is ASEAN and Oceania, in Thailand, demand has been sluggish due to tightening of credit standards. We were able to recover our market share while the sales volume decreased year-on-year. Looking ahead, we will work to expand our market share focus on the new Xpander HEV, which is performing well. The new Triton, which offers full lineup and Mirage and Attrage, which enjoys solid sales. Indonesia is also experiencing a severe sensation where total demand has fallen year-on-year for 13 consecutive months since June, 2023. Our sales volume decreased year-on-year, but our market share improved. Going forward, we will further expand our market share by strengthening the new export model launched in FY2023, introducing the new Triton and introducing special edition models. In the Philippines, automotive demand has been firm and we are expanding both our market share and sales volume. This was due to favorable sales of Mirage G4 and Xpander, as well as the impact of the introduction of the new Triton. In this first quarter, our sales share in the Philippines reached 18.8%. In the second quarter onboard, we will work to achieve further growth through the new Xforce launch in July. In Vietnam, although the economy seems to have hit the bottom, automotive demand remains sluggish. In such a situation, Xpander continues to rank number one in sales among all models, and the new Xforce also broke into the top five in sales, immediately after its launch, expanding both sales volume and market share year-on-year. While the market environment is unstable due to reluctance to buy with the expectation that the Vietnamese Government will have registration taxes, we will continue to expand sales volume and market share by leveraging the main models of Xpander and new Xforce, as well as the new Triton, which is scheduled to be introduced soon. And the Australian region in Australia, which makes up the majority of the region, total demand grew by 5.3% year-on-year, and we increased our sales volume by more than 30% year-on-year, partly due to the vehicles supply being restored. Our market share expanded as well. Sales of the new Triton began earnest in June, and we will continue to strengthen sales. Please go to Page 7.

Unidentified Company Representative: Next is Latin America and the Middle East and Africa. In Latin America, automotive demand in Brazil is on the recovery track, partly due to a reduction in policy interest rates, although it still does not reach the pre-COVID level in other major countries. The pace of recovery in automotive demand is moderate, partly due to headwinds such as the tightening of automobile loan screening. In this environment, we were able to increase sales volume year-over-year by leveraging the introduction of the new L200 Triton and the Outlander Sport or Xforce. We will continue to focus on maintaining solid sales momentum and further increasing sales. In the Middle East, despite the impact of the Israeli Gaza conflict in some countries, overall demand for automobiles has generally remained almost at the same level as the previous year. We generally recorded sales on the par with the previous year as a strong sales of Xpander in Orlando offset the decline sales of 8,200, whose inventory has been reduced for the launch of the new model. Meanwhile, in Africa, automotive demand was sluggish due to the high interest rate and inflation, and we were also affected by these factors resulting in the decline in sales volume. We plan to boost sales volume by launching new models. Please turn to Page 8. Here, Japan, North America and Europe, in the domestic market, automotive demand decreased year-over-year, partly due to the impact of the suspension of shipments of some OEMs, but we maintained the strong sales momentum on Delica Mini and increased sales volume. Going forward, in addition to the introduction of Outlander PHEV and Delica Mini special edition models, we will work to increase sales of the new Triton, which has been well received since its launch. In North America, in the U.S. and Canada, amid a deteriorating retail sales environment due to the impact of high interest rates and inflation, we continued to focus on improving the quality of sales, rather than trying to reduce prices. In addition, a cyber-attack on a dealer IT system in late June had a significant impact on the operations of approximately — about one-third of our dealers, and our sales volume decreased year-over-year. Going forward, we will strengthen our incentive program for targeted customers and work to increase sales, focused on continued sales momentum for Outlander and Outlander PHEV. Meanwhile, sales in Mexico, which is included in North America region, remained strong, and both sales volume and market share increased year-over-year. Looking ahead, we aim to increase sales volume and market share by further expanding sales of the new L200 Triton, which is robust in sales and by launching the new Xforce. In Europe, competition remains challenging, but our sales volume increased year-over-year, driven by the contributions of ASX and Colt, both of which are OEM models from Renault (EPA:). Going forward, we will expand sales of the new ASX and prepare for the launch of the Outlander PHEV scheduled at the end of the current fiscal year. Please turn to Page 10. Although there is some leeway in the foreign exchange rate assumptions, we have decided to maintain the forecasts announced at the beginning of the fiscal year in light of the uncertain macro environment and the expected further intensification of competition. Although the business environment remains challenging, we as a company will make concerted efforts to achieve our forecasts. Next, I will introduce the business highlights for the Q1 FY2024. Please turn to Page 12. The new Triton and the new Xforce, which were launched in FY2023 have begun full-scale deployment since this fiscal year, and were launched in ASEAN, Latin America and the Middle East and other regions in the first quarter FY‘24. These products, which embody the unique characteristics of Mitsubishi moderness have been well received by many customers in their respective regions and countries. From the second quarter onward, as shown on the slide, we plan to expand into the Middle East and Africa by steadily developing our products, we will further penetrate and strengthen our brand. Please turn to Page 13. We announced the Outlander PHEV will make its public debut on October 1, 2024 in Madrid. The new generation of Outlander, PHEV, starts production at the end of 2024 and will join a very revitalized lineup throwing the new ASX and the old new Colt. In Europe, the Outlander is a pioneer in PHEV plus SUV and has been winning numerous awards and has been accepted by many customers with sales of the 0.2 million units in Europe since its introduction back in 2013. We aim to take a brand to a new level and further strengthen the brand by launching the new generation along the PHEV in the European market. In the first quarter of FY2024, the environment surrounding us was becoming increasingly severe as seen in the prolonged weakening of sales in the SEM market particularly in Thailand and the normalization of the competitive environment due to the resolution of the shortage of parts supplied, caused by semiconductors. On the other hand, the new Triton and the new Xforce have been rolled out from ASEAN to global markets. Going forward, we will start full scale sales of these products, while expanding them to other regions in line with our plans. Although, the global wave of high inflation seems to have finally picked out the future outlook will remain extremely difficult due to heightened geopolitical risks and a series of important elections, including the US presidential election, which is scheduled for November. Although the situation continues to be difficult to manage, we will steadily implement the rollout of new models and focus on accelerating our initiatives set at the beginning of the fiscal year, such as strengthening regional businesses, taking on challenges in new business areas and new business formats through various partnerships. That’s all from my side. Thank you.

End of Q&A:

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