Toyota Motor Corp., the world’s biggest automaker, reported profit unexpectedly climbed to a record last quarter as surging SUV sales in the U.S. eclipsed shrinking demand in Japan.

Net income in the April-to-June period rose to 587.8 billion yen ($5.7 billion), trumping the 497.3 billion yen average of 12 analyst estimates compiled by Bloomberg. The Toyota City, Japan-based carmaker maintained its 1.78 trillion yen profit forecast for the fiscal year ending in March 2015.

Chief Executive Officer Akio Toyoda is clinging to a lead over Volkswagen AG (VOW) as the world’s top-selling carmaker on surging demand for sport utility vehicles including its revamped Toyota Highlander and Lexus GX models. Toyota’s performance in the U.S. market has softened the blow from falling sales in Japan after the nation’s first sales-tax increase in 17 years.

“They sell an awful lot of high-end SUVs,” Mark Yockey, a New York-based managing director at Artisan Partners, which oversees $31.3 billion in equities including Toyota, said by telephone before the company released results. “There’s a waiting line to buy Highlanders in the U.S., and those sell at much higher margins than if you’re just selling Corollas.”

Toyota rose 1 yen to 6,042 yen at the close in Tokyo before the company announced earnings. The shares have slipped 5.9 percent this year after surging 60 percent in 2013 and 56 percent in 2012.

Tax Fallout

Entering this fiscal year, Toyota predicted net income would decline from last year’s record 1.82 trillion yen, as Japan’s largest carmakers braced for slumping domestic sales following an increase in Japan’s consumption tax on April 1.

The fallout was less drastic than expected, with combined sales of standard and mini vehicles slipping 1.9 percent in the April-to-June period, narrower than the 16 percent fiscal year plunge predicted by the industry’s trade group in March. Toyota, which counts on Japan for about one-fourth its global deliveries, posted a 5.1 percent drop during that span.

Before today’s results, analysts were projecting Toyota would earn 1.96 trillion yen in profit this fiscal year.

Toyota’s net income led the industry for the quarter. Its profit was about 30 percent higher than Volkswagen’s 3.19 billion euros ($4.4 billion), and surpassed the combined earnings at General Motors Co. (GM), Ford Motor Co. (F), Nissan Motor Co. (7201) and Honda Motor Co. (7267)

Toyota is outpacing a growing U.S. auto market headed toward its best year since 2006, buoyed by more confident consumers, recovering payrolls and low interest rates. The company’s U.S. deliveries climbed 11 percent in the April-to-June period, topping the total industry’s 6.9 percent rise.

Worldwide Sales

Through the first half of 2014, Toyota and its Hino Motors Ltd. (7205) and Daihatsu Motor Co. (7262) units sold 5.1 million vehicles worldwide. Volkswagen last week reported 5.07 deliveries, including results for its heavy-truck units.

Volkswagen outsold Toyota during the second quarter as the Prius — last redesigned in 2009 — posted sales declines in the U.S. market and fell to a third-place ranking among Japan’s top models, after leading the industry in the year-earlier period.

A revamped Prius due out next year will be the first vehicle underpinned by what the company calls “Toyota New Global Architecture,” a vehicle development and manufacturing system aimed at cutting costs by 30 percent through expanded use of common parts. The next-generation Prius also will use more powerful batteries and a smaller electric motor to boost fuel economy and improve driving dynamics.

China Hybrids

Hybrids including Prius would bolster Toyota’s plans to expand in China, where the company lags behind Volkswagen and GM. The automaker is selling Corolla and Levin compact cars with locally made hybrid parts this year, a move that spares its gasoline-electric models from 25 percent tariffs levied on imported vehicles.

Toyota fell behind Ford in China last year to rank sixth among foreign carmakers. While the company boosted sales by 12 percent in the first half of this year to 465,900, Volkswagen and GM each outsold Toyota by more than 3-to-1.

Other countries in Asia are dragging down on Toyota’s earnings, led by Thailand, where a military coup overthrew the government in May. The company projects industrywide deliveries this year will plunge 31 percent and forecasts its total sales will decline 26 percent.

Thailand Coup

The automaker is counting on a more stable political environment in Thailand to stoke a rebound in consumer confidence in one of its most important production hubs, where it has two vehicle factories, a parts plant and research-and-development center.

Toyota is outpacing industry growth this year in Europe, where automakers have posted 10 consecutive months of sales gains, the longest stretch in four years. Car demand is recovering from a two-decade low reached in 2013, with registrations rising 6.8 percent for Toyota in the first six months of this year, according to the European Automobile Manufacturer’s Association.

Looking ahead, Toyota plans to introduce two crucial models to help boost deliveries for the remainder of the fiscal year. Beginning in September, the company will sell a reworked Camry with more contoured body panels to defend its position as the top-selling car in the U.S. for the last dozen years.

The Lexus luxury brand last week began Japan sales of the NX crossover, which is positioned beneath the RX SUV. Deliveries of the model begin in November for the U.S. market, where Toyota’s luxury line is catching up to Daimler AG’s Mercedes-Benz and Bayerische Motoren Werke AG’s BMW.

(Source: Bloomberg)