Mazda Motor Corp posted a 1.5 percent rise in quarterly operating profit as a weaker yen, cost cuts and sales growth offset a cutback in shipments to North America, and kept its full-year profit forecast unchanged.

Sales at Mazda, owned one-third by Ford Motor Co, have gained momentum around the world largely on the success of the Mazda3/Axela compact car, and growth is set to continue with the recent launch of the revamped Mazda2/Demio subcompact and the upcoming rollout of the Mazda6/Atenza sedan in major markets.

With its factories humming at full speed, Mazda is adding production capacity in Japan, China and Thailand to fuel further growth. Forecasting better sales in North America and smaller markets such as Australia, Mazda nudged up its global sales outlook for this business year by 10,000 vehicles to a record 1.36 million.

But executives said the industry faced a tough environment consisting of risks from the U.S. subprime loan fallout, soaring crude oil and raw material prices and volatile exchange rates, providing a cautious view for the rest of the year.

Under these uncertain conditions, our best course is to have prudent planning, Chief Financial Officer David Friedman told a news conference.

Executives said the subprime loan issue was hitting sales of Mazda's more discretionary models such as the RX-8 and MX-5 sports cars, and could potentially shake consumer confidence to affect car sales in general.

Operating profit for the July-September second quarter was 40.8 billion yen ($355.2 million), slightly ahead of an average estimate of 39.6 billion yen from six brokerages surveyed by Reuters Estimates. Net profit grew 29 percent to 26.6 billion yen.

Revenue rose 7.0 percent to 841.9 billion yen. Retail sales fell in Japan, Europe and China but grew in North America and markets such as Australia, the Middle East and South America, putting worldwide sales at 336,000 vehicles, up 2.1 percent.

The results were in line expectations, Credit Suisse analyst Koji Endo said. A softer-than-expected yen was helping offset a rise in North American sales incentives and provide a cushion for the external risks that Mazda foresees, he said.

During the first half, Mazda pulled back shipments to North America to work down a swollen inventory of unsold cars. But retail sales grew 8.2 percent last quarter, especially aided by two relatively new models -- the CX-7 and CX-9 -- in the fastest-growing crossover segment.

Our global inventory is now at an appropriate level, Friedman said.

Other domestic automakers including Nissan Motor Co , Honda Motor Co and Suzuki Motor Corp have also reported a rise in second-quarter earnings. Toyota Motor Corp announces results on Wednesday.

SOFT YEN TO HELP

For the year to March 31, 2008, Hiroshima-based Mazda kept its projections for operating profit to rise 0.9 percent to 160 billion yen and net profit to grow 15 percent to 85 billion yen.

That would mark the seventh straight year of rise and record highs for all profits.

Consensus forecasts from 18 brokerages are for an operating profit of 167 billion yen and net profit of 88 billion yen.

Mazda tweaked its projections for retail vehicle sales by region, cutting its domestic forecast by 10,000 to 252,000 vehicles while lifting the figures in North America and markets outside Europe and China.

It also changed its exchange rate assumptions, now expecting the euro to average 159 yen for the year instead of 153 yen. It kept its dollar assumption at 115 yen.

As a result, it now sees currency gains adding 18.9 billion yen at the operating level instead of having a negative impact of 1.2 billion yen. The windfalls would be offset by smaller cost savings, higher sales incentives and other factors.

Shares of Mazda have slid 16 percent so far this year, faring worse than Tokyo's transport sub-index, which is down 10 percent.

Prior to the earnings announcement, the stock ended down 2.6 percent at 686 yen on Friday, against a 3.3 percent fall in the sub-index.

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