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TOKYO: Toyota Motor Corp posted a worse-than-expected 42% hit to quarterly operating profit on Thursday as the Japanese automaker was squeezed by both supply constraints and rising costs.

Operating profit for the three months ended June 30 sank to 578.66 billion yen ($4.3 billion) from 997.4 billion yen in the same period a year earlier, capping some difficult months for Toyota.

It has repeatedly cut monthly production targets due to the global chip shortage and COVID-19 curbs on plants in China.

But the size of the earnings decline was far beyond what investors had expected - analysts polled by Refinitiv had estimated a 15% drop - and appeared to catch the market by surprise: Toyota’s shares extended losses and were down as much as 3% after the results.

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Despite the grim quarter, the automaker stuck to both its forecast for full-year operating profit and its plan to produce 9.7 million vehicles this year.

Profit in the fiscal first quarter was hit by constraints in supply, lower sales and a rise in materials costs, a Toyota spokesperson said.

Like other auto manufacturers, Toyota is grappling with higher costs and fears that global inflation could put the brakes on consumer demand.

But Toyota’s current production woes mark a departure from its initial success in navigating supply chain problems in the early stages of the pandemic.

The carmaker cut its monthly production targets three times during the April-June quarter, falling 10% behind its initial goals, due to shortages of semiconductors and the impact of COVID-19 lockdowns in China.

Toyota shares, which were down 0.5% just before the release of the earnings, extended losses immediately after and were down 2.3% at 2,106 yen by 0450 GMT.

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