American Depositary Receipts (ADRs) are certificates held by a designated U.S. bank and represent a stock that trades on a foreign exchange.
This automaker’s sales will likely remain depressed for the next few months as the industry recovers from the COVID-19 pandemic, but investors in its ADRs can expect its cost cutting to shore up its earnings as it waits for a rebound.
TOYOTA MOTOR CO. ADRs (New York symbol TM; www.toyota.com) gives you exposure to the world’s largest automaker.
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The spread of COVID-19 has forced Toyota, and other carmakers, to temporarily shut down their production plants. Also due to COVID-19, Toyota’s sales fell 6.5% in its fiscal 2020 fourth quarter, ended March 31, 2020, to 2.13 million vehicles. All of the company’s main markets contributed to the decline: Japan sales were down 7.6%; North America dropped 8.3%; Europe fell 3.7%; and Asia (excluding Japan) fell 9.8%. However, sales improved 1.6% in other regions.
Overall revenue in the quarter also declined 7.6%, to $65.1 billion from $70.5 billion a year earlier. The company’s earnings before one-time items dropped 16.1%, to $3.38 billion from $4.03 billion (it did not provide per ADR figures).
Value Stocks: Plants re-open as cost-cutting should cushion earnings
Toyota is now reopening its plants in Japan, North America and Europe. However, they will operate at sharply lower capacity given that the company expects sales in fiscal 2021 to fall about 22% to 7 million vehicles worldwide.
Still, investors should expect Toyota’s pre-COVID cost control plan to cushion the impact on earnings. The company will also likely suspend its share buyback program to further support its current annual dividend of $4.02 per ADR; it offers investors a solid 3.1%.
The company continues to restructure its North American operations to take advantage of the new U.S.-Mexico-Canada (USMCA) free trade pact. Under Toyota’s plan, vehicle assembly plants will be grouped by their platforms and common architecture. That will boost investor value by cutting costs and making it easier to adjust production to match fluctuating consumer demand for specific vehicles.
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