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<ul><li>The Japanese car making giant has been hit by severe slowdown in car sales in India.</li><li>Suzuki shares have lost over a sixth of its share value this year due to the fear of depleting earnings.</li><li>Maruti accounts for over 52% of Suzuki’s global sale volumes.</li></ul>India’s largest car maker Maruti Suzuki has cut production for eight months in a row due to lack of buyers. The depleting earnings for Maruti is affecting its Japanese parent Suzuki, who just announced a nearly 40% cut in its estimate for operating income this year. The shares of Maruti fell over 2% immediately after the announcement from Suzuki. "The Company hereby revises the consolidated business forecast due to decrease in Japan production in the course of restructuring final inspection scheme, slowdown in Indian automobile market, and exchange rate fluctuations," <a href="https://www.release.tdnet.info/inbs/ek/140120191010406987.pdf" data-type="tilCustomLink" target="_blank">Suzuki said in a filing</a> with the stock exchanges in Tokyo. <table style="width: 188pt;"> </colgroup> <tbody><tr> <td class="xl63" style="height:15.0pt;width:101pt">March 2020 Forecast</td> <td class="xl63" style="border-left-width: initial; border-left-style: none; width: 87pt;">Cut</td> </tr> <tr> <td class="xl64" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 101pt;">Net sales</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 87pt;">10.30%</td> </tr> <tr> <td class="xl64" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 101pt;">Operating income</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 87pt;">39.40%</td> </tr> <tr> <td class="xl64" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 101pt;">Ordinary income</td> <td class="xl65" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 87pt;">35.30%</td> </tr> <tr> <td class="xl64" style="height: 15pt; border-top-width: initial; border-top-style: none; width: 101pt;">Net income </td> <td class="xl66" style="border-top-width: initial; border-top-style: none; border-left-width: initial; border-left-style: none; width: 87pt;">30%</td> </tr></tbody></table> Brokerage house CLSA has maintained a 'buy' rating on Maruti Suzuki with a target price of ₹7,950 over the next 12 months hoping that the new models will lure some buyers who are still on the fence. The slowdown in car sales is not unique to Maruti. Car sales in India fell 20.5% in September compared to a year earlier. Aside from the economic slump in India, car buyers have shied away from showrooms expecting duty cuts and lower prices as well as fearing a loss of value for their new cars when the new emission norms kick in next year. This has been a debilitating blow for Suzuki for whom India makes for <a href="https://economictimes.indiatimes.com/industry/auto/maruti-continues-to-drive-suzukis-global-growth-story/articleshow/67860711.cms?from=mdr">over half of all its global sale volumes</a>. “In view of the current sales environment, we lower our estimates for India domestic sales to +0.2% for FY2019 (from +5.4%) and +3.7% for FY2020 (+6.4%),” JPMorgan said in a report in June. The steady decline in car sales in India has been the worst in 18 years, according to the Society of Indian Automobile Manufacturers (SIAM). In September 2001, after the tech bubble burst plunging the global economy into a temporary crisis, the sales had dropped down by 21.91%. In rural India, the decline in demand for cars is attributed to a protracted farm crisis, made worse by the ongoing water crisis and deficient monsoon in many parts. This has had a significant impact on Maruti, which has a deeper reach and penetration outside the big cities too. People in India increasingly prefer cab aggregators like Ola and Uber, or even <a href="https://www.businessinsider.in/cars24-used-cars-startup-could-soon-turn-profitable-will-breakeven-by-december-2019/articleshow/69993448.cms">second hand cars to new ones</a>. SEE ALSO: <a href="https://www.businessinsider.in/business/corporates/news/mahindra-suvs-and-pick-up-trucks-are-a-rage-in-south-africa-even-in-a-shrinking-market/articleshow/71518308.cms" data-type="tilCustomLink" target="_blank">Mahindra SUVs and pick-up trucks are a rage in South Africa even in a shrinking market</a> <a href="https://www.businessinsider.in/union-budget-2019-indian-government-announces-tax-subsidy-for-purchasers-of-electric-vehicles/articleshow/70091003.cms">Tata Motors, Maruti, Mahindra will benefit from tax deductions on electric vehicles</a> <a href="https://www.businessinsider.in/cars24-used-cars-startup-could-soon-turn-profitable-will-breakeven-by-december-2019/articleshow/69993448.cms">EXCLUSIVE: Cars24 is racing towards profitability as Indians choose used cars over new ones</a> <a href="https://www.businessinsider.in/tata-motors-jaguar-land-rover-moodys-downgrade/articleshow/69889499.cms">Jaguar Land Rover is dragging Tata Motors along in its downward spiral</a>

Suzuki just slashed its operating income forecast by 40% citing slower sales in India

<ul><li>Two of the world's largest car makers have come together to form a capital tie-up, according to Japanese public broadcaster NHK.</li><li>Suzuki is one of the world's leading small car maker while Toyota is known for its bigger variants.</li><li>Suzuki operates in India through its subsidiary Maruti while Toyota has seen success with its SUVs like Innova in India.</li></ul>Japanese car makers Toyota and Suzuki have decided to pool in capital expanding their existing partnerships in electric vehicles, according to the <a href="https://www3.nhk.or.jp/nhkworld/en/news/20190828_58/" data-type="tilCustomLink" target="_blank">country's public broadcaster NHK</a>. This marks the biggest consolidation in recent times in the global automobile industry, which has been going through a rough face recently due to slowing economies around the world, falling demand for cars, and technological leaps that threaten the very existence of traditional car makers. Suzuki, which specialises in affordable compact cars, had been struggling to keep pace with the huge costs of investing in research including self-driving cars.. The two companies announced a tie-up to produce electric vehicles and compact cars for each other to better compete with fast-changing technologies in the global auto industry. The rise of cab hailing services like Uber and Ola have also eaten into the mobility pie. The unravelling trade war between US and China has dented sales and political events like Brexit (Britain's exit from the European Union) have cast an ominous shadow on businesses. <a href="https://www.businessinsider.in/new-bs-vi-norms-and-falling-auto-sales-hurt-car-makers/articleshow/70858557.cms" data-type="tilCustomLink" target="_blank">Emission norms are getting stricter</a> across the world and that is adding the burden of investment on car makers at a time when there are fewer buyer in the market. Earlier this month, <a href="https://europe.autonews.com/automakers/toyota-trims-full-year-profit-forecast" data-type="tilCustomLink" target="_blank">Toyota cut its full-year forecasts</a> citing unfavorable currency exchange rates while the sales grew a mere 4%. Suzuki too has <a href="https://www.autocarpro.in/news-international/india-slowdown-weighs-on-suzuki-global-production-43675" data-type="tilCustomLink" target="_blank">cut global production for the fifth month</a> in a row in June 2019, including in its biggest market India, where car sales have now declined for 10 straight months. The partnership will be a threat to car makers in India, like Tata Motors, M&amp;M, Hyundai, who are also in a state of flux like much of the world for similar reasons- slowing growth and demand, falling sales, and the need to invest in new technologies. Suzuki has deeper roots in India thanks to its partnership with Maruti Suzuki, the country's largest car maker with an enviable distribution network. Toyota too has seen some success in India since it entered the mass-market segments in India in the second half of the 2000s. The sports utility vehicle Innova has been a runaway success and nearly synonymous with the category. Other models have made a mark in India although not as big as the Innova. The two companies together have a history of over 200 years and the partnership reflects both the current state and the future possibilities. Few in the world may have werewithall to battle the combined muscle-- financial, expertise, and brand value-- of Suzuki and Toyota in the journey to electric vehicles and subsequently to newer technologies like automated driving etc. SEE ALSO: <a href="https://www.businessinsider.in/suzuki-earnings-estimate-cut-as-marutis-india-sales-fall/articleshow/70128693.cms" data-type="tilCustomLink" target="_blank">Suzuki just lost nearly $2 billion in 2 days because of what’s happening in India</a>

Suzuki and Toyota have decided to pool money to beat competition in global auto industry

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Carlos Barria/Reuters</div></div></div><ul><li>Equity strategists at Bank of America Merrill Lynch, like many others, expect the corporate tax cut to boost company earnings. </li><li>But BAML thinks the boost will be short-lived, probably not beyond 2018. </li><li>More profits would mean more competition that could drive down margins, and the Fed could speed up interest rate hikes, the bank said in a note on Wednesday. </li></ul> Equity strategists at Bank of America Merrill Lynch raised their forecast for corporate profits this year, thanks to the expected boost from lower corporate taxes. But they're not anticipating a boost to growth far beyond December. In a note on Wednesday, a team of strategists led by Dan Suzuki said they raised their 2018 S&amp;P 500 earnings per share target by 10% to $153. They'd already lifted the target late last year, just before President Donald Trump signed the <a href="http://www.businessinsider.com/trump-gop-tax-reform-bill-pass-house-bracket-rates-changes-2017-12">Tax Cuts and Jobs Act</a> into law."The biggest impact on earnings from tax reform comes from the lowering of the federal tax rate from 35% to 21%, making up roughly $10 of the $14 increase," Suzuki and his team wrote. "Buybacks represent another $3 of the increase, with some modest offsets from the minimum foreign tax rate and the cap on interest deductions."This boost, however, is less than the full tax-cut benefit they estimated last year, as some companies have already announced how they plan to spend their windfall, including <a href="http://www.businessinsider.com/trump-gop-tax-plan-companies-rush-to-announce-special-bonuses-pay-hikes-2017-12">one-time employee bonuses</a>.And beyond 2018, the strategists think tax reform could in fact be a deterrent to earnings growth. They cited three reasons. First, companies would be able to compete better with higher returns. While that's usually good for consumers, the downside is that the drive to increase market share could hurt company margins over time. Some industries like retail are already facing this predicament. Secondly, BAML argues that stronger growth could prompt the Federal Reserve to raise interest rates faster than it is expecting, which could then turn around and be a drag on the economy.One of the biggest criticisms of rate increases has been low inflation, the reasons for which Fed Chair Janet Yellen has said are <a href="http://www.businessinsider.com/fed-chair-jerome-powell-inflation-rick-rieder-2017-11">mysterious</a>. But with most major economies around the world solidly in expansion, and in a tight US labor market, many strategists have flagged that 2018 could be a year when inflation becomes an issue to deal with again.Also, BAML recalled that tax reform was passed in 1986, one year before the slump into a bear market and shortly before the savings and loan crisis. Sure, the stock market got double-digit earnings growth from the tax law, but it didn't stop the descent. "Our economists expect only a modest lift to GDP growth from tax reform over the next couple of years, with growth slowing from 2.6-2.7% in 2018 to 2.2-2.3% in 2019," Suzuki said. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/bitcoin-paul-krugman-trump-tax-economic-policies-tech-stocks-2017-12">THE BOTTOM LINE: Bitcoin mania, a Nobel Prize-winning economist talks Trump, and a deep dive on unstoppable tech stocks</a></h3> <div> </div> </div>

BANK OF AMERICA: Tax reform could be a drag on company profits by next year

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Apple</div></div></div>NEW YORK (Reuters) - <keyword id="28249" type="COMPANY" weightage="60" keywordseo="europe">Europe</keyword>, long a scapegoat for weak earnings at U.S. multinational companies, is now looking like a more dependable source of profits, and that could make some stocks that have lagged this year's rally more enticing to investors.
Big players in the technology sector, which has the highest exposure to Europe, are among those best positioned for a boost to the bottom line from the region's gradual recovery.
On a price-to-earnings basis, tech as a group is nearly 8 percent cheaper than the benchmark S&amp;P 500 index, now at its most expensive since late 2008, suggesting some tech stocks may have room to catch up.
Tech names with some of the highest exposure to Europe, based on Bank of America Merrill Lynch data, have mostly underperformed this year. IBM <IBM.N> is down 8.5 percent on the year, while Oracle <ORCL.N>, is up just 3.7 percent. Both derive at least 32 percent of their sales from Europe. Meanwhile the S&amp;P 500 &lt;.SPX&gt; is up 25 percent.</ORCL.N></IBM.N>
Energy, which also has high exposure to Europe, lags the S&amp;P 500's gains as well.
The euro zone, a source of weak sales for S&amp;P 500 companies for several quarters, emerged from its recession earlier this year. If its recovery persists, the region could help U.S. earnings get off their own path of lackluster growth.
"It's important for investors to realize Europe doesn't have to be a hole anymore in earnings," said Joseph Quinlan, managing director and chief market strategist at U.S. Trust, Bank of America Private Wealth Management in New York. "Even a little growth in Europe is going to go a long way to help boost the profitability of U.S. multinationals."
To be sure, a rebound in Europe is expected to be slow and spotty, much like the U.S. recovery, and many argue optimism about the improvement is premature.
While the European Commission has forecast 1.1 percent GDP growth in 2014 after a 0.4 percent contraction this year, the European Central Bank last month surprised investors by cutting interest rates to help spur its tepid growth.
<h3>NO PREMIUM FOR FOREIGN EXPOSURE</h3>
Relative enterprise valuation data on companies with the most foreign exposure are trading close to their steepest discount to more domestically oriented names in the last decade, BAML data showed, while its global fund manager survey showed managers are overweight U.S. and U.S.-centric stocks and underweight more foreign-exposed ones.
The tech sector's forward PE is 14.1 times expected earnings, among the lowest of the 10 S&amp;P sectors, Thomson Reuters StarMine data shows. The PE for energy, which has the third-largest exposure to Europe after materials, is 13.1, lowest of any sector.
Meanwhile, one of the least-exposed sectors to Europe, consumer discretionary, sports a multiple of 18.2. The overall S&amp;P 500 is trading at 15.3 times forward 12-month earnings, the most expensive it has been by that measure since the fourth quarter of 2008.
Within tech, IBM's PE is 9.9, and Oracle's is 11.7. Hewlett-Packard's forward PE is 7.5, expanding from around 4 in January, as its stock is up nearly 90 percent this year.
As a region, Europe accounts for the biggest part of overseas sales for U.S. companies, representing about 10 percent of S&amp;P 500 company sales, S&amp;P data shows.
"I would say there's still upside in these global cyclical companies," Quinlan said. "There's room to put money to work still."
<h3>THE TIDE IS TURNING</h3>
Results from U.S. companies generating the bulk of sales overseas turned the corner in the third quarter, and fourth-quarter results for that group are expected to improve more, thanks largely to Europe, according to Mizuho Securities USA.
"What we began to see in the third quarter was some evidence that the improvement in Europe is filtering through profits here in the U.S.," said Carmine Grigoli, chief U.S. investment strategist at Mizuho Securities USA in New York.
Based on results from 83 S&amp;P 500 companies that generate 60 percent or more of revenue from overseas, year-over-year earnings declined 10 percent in the first half of the year and were down 0.4 percent in the third quarter. They are expected to rise 3.3 percent in the fourth quarter, Mizuho's data showed.
That compares with the S&amp;P 500's 2.5 percent profit gain in the first half and 4.5 percent gain in the third quarter.
Revenue for those 83 companies fell 5.3 percent in the first half and rose 0.3 percent in the third quarter, while it is forecast to increase 1 percent in the fourth quarter.
Moreover, U.S. companies have begun to talk about Europe in a more positive light. Federal Express <FDX.N> and Ford Motor Co <F.N> were among companies citing an improving picture for the region in the latest reporting period.</F.N></FDX.N>
Ford in October posted stronger-than-expected quarterly results and boosted its full-year global profit forecast based on its European outlook and overseas demand. It said its European unit will be profitable in 2015, earlier than previously expected.
"It's been a huge shift in the rhetoric and the outlook over the past couple of quarters," in terms of Europe, said Dan Suzuki, equity strategist at Bank of America Merrill Lynch in New York.
(Reporting by Caroline Valetkevitch; Editing by Dan Burns and Bob Burgdorfer)

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Suzuki just slashed its operating income forecast by 40% citing slower sales in India

Sriram Iyer

Suzuki and Toyota have decided to pool money to beat competition in global auto industry

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BANK OF AMERICA: Tax reform could be a drag on company profits by next year

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Europe Is No Longer The Bane Of U.S. Corporate Profits

Caroline Valetkevitch, Reuters

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