Denso Reports 11% Drop in Q1 Operating Profit Due to U.S. Tariffs and Yen Strength

Denso, a major automotive parts supplier for Toyota, has reported an 11% decline in operating profit for the first quarter (April to June) due to the impact of U.S. import tariffs and a strengthening yen. The operating profit fell to 107.2 billion yen (approximately $720 million), which was below the average forecast of 130 billion yen by seven analysts surveyed by the London Stock Exchange Group. Consolidated operating revenue remained flat at 1.7541 trillion yen (about $11.7 billion) compared to the same period last year, while net profit attributable to the parent company owners was 79.3 billion yen (about $500 million), a decrease of 16.1% year-on-year. Denso's Chief Financial Officer, Yasushi Matsui, stated, 'Despite the negative impact from the stronger yen, our revenue remained stable year-on-year, driven by robust domestic automobile sales in Japan.' In light of the Q1 performance, Denso has maintained its full-year operating profit growth forecast of 23% to 675 billion yen (approximately $4.5 billion), while raising its revenue target for the same period by 2% to 7.2 trillion yen (about $48.2 billion). Matsui mentioned, 'The operating profit forecast remains unchanged, thanks to effective measures to control tariff impacts and steady cost recovery through pricing. Additionally, to enhance corporate value, we have decided to sell our shares in Toyota Industries and have notified Toyota Industries in advance about its planned buyout of Denso shares.' Denso's initial fiscal year performance estimate was made at the end of April when U.S. President Trump announced reciprocal tariffs on trading partners. In a statement on July 31, Denso indicated that U.S. tariff policies would reduce its annual operating profit by 130 billion yen and expressed its intention to seek ways to offset some of the impact. Matsui added, 'We will take measures, such as producing locally in the U.S. those products that can be made there to completely eliminate the effects of tariffs.' More than half of Denso's revenue comes from companies within the Toyota Group, including Toyota's truck division Hino Motors and compact car manufacturer Daihatsu. Recently, Japan and the U.S. reached a trade agreement in which Japan will invest $55 billion in the U.S. in exchange for a reduction of tariffs on Japanese cars, parts, and other goods to 15%. This will undoubtedly alleviate tariff pressures for Denso.