The automaker's operating income fell 38.9 percent to $3.9 billion, in part because of a collapse in the profitability of Toyota's North American operations to $15 million from $1.4 billion. However, that figure does not include earnings generated from the sale of Japanese-built vehicles shipped to the United States -- a sum that Toyota did not disclose.

 

The yen's rise against the dollar had a negative $1.8 billion impact on Toyota's results in the April-June quarter, the first quarter of the Japanese fiscal year. Soaring raw materials prices also weighed on results, negating the effect of recent cost-cutting measures, Senior Managing Director Takahiko Ijichi said on a teleconference.

 

'We're making further efforts at the Toyota group to accelerate our cost-reduction efforts,' he said.

 

Although Japan's major automakers are still making money, they have been shaken by falling U.S. auto sales and a sweeping consumer shift out of trucks and into small cars. Traditionally, the United States has been their most lucrative market. But now, like Detroit's automakers, Toyota, Nissan Motor Co. and Honda Motor Co. have suffered declines in their truck sales and have not been able to increase small car output fast enough to meet demand.

 

'Currently, we can't satisfy the order backlog for Yaris and Corolla,' Ijichi said. 'Because of short supplies of batteries, we're not able to satisfy demand for Prius,' Toyota's popular hybrid car.

 

The Toyota City-based automaker took a $95 million provision in its first-quarter results related to adjustments to its U.S. production plans. Toyota said in July that it would halt production of big trucks and SUVs in North America for three months. In addition, it will now produce Prius hybrids at a plant under construction in Mississippi that was originally slated to assemble Highlander SUVs.

 

Toyota's overall revenues slipped 4.7 percent to $57 billion as rising sales in Asia failed to offset lower sales in Europe and the United States. Toyota's U.S. sales fell 4 percent to 729,000 vehicles during the three-month period and dropped 10 percent in Europe to 301,000 vehicles.

 

The difficulties in the U.S. market also undercut Toyota's earnings in the prior quarter ended on March 31. Profits for that quarter also fell 28 percent.

 

Ijichi said the company anticipates that tough conditions in the United States will persist through the current fiscal year ending on March 31, 2009, but expects the U.S. market to start recovering next year.

 

Nikko Citigroup analyst Noriyuki Matsushima said Toyota's results were in line with his expectations and maintained his buy rating on the shares, citing an earnings recovery expected next year. He cautioned investors, however, of a risk that Toyota 'may not have factored in the impact of further deterioration in market conditions.'

 

Toyota left its full-year profit forecasts unchanged. In May, the company predicted net profit would fall 27 percent this year, its first annual decline in seven years. Last year, Toyota earned a record $15 billion.