Toyota Motor Corp <7203.T> withdrew its annual profit guidance on Tuesday as Thai floods threaten output just as it had recovered from supply shortages that battered production after the March earthquake in Japan.

Like Toyota, Honda Motor Co <7267.T> also dropped its earnings forecasts after being hard hit by Thailand's worst floods in at least 50 years, although Nissan Motor Co <7201.T> raised its outlook as it adapts more quickly to the disaster.

Toyota, Japan's top automaker, posted a bigger-than-expected 32 percent slide in quarterly operating profit, crimped in part by a soaring yen as the company was recovering from the earthquake and tsunami.

But it reaffirmed a commitment to manufacture at home even if the yen's strength makes exports less competitive against rivals such as South Korea's Hyundai Motor Co <005380.KS> and it outlined plans to cope with the exchange rate.

Once the world's most envied and profitable automaker, Toyota has lost its shine against domestic rival Nissan, which a Toyota executive said may have proven more adept at dealing with the crises affecting both companies this year.

I can't deny that Nissan may have done some things right, given the outcome of how they recovered from both the earthquake and the floods, Toyota's chief financial officer, Satoshi Ozawa, told a news conference. If there's something there to learn from, we'd like to do that.

Toyota's three vehicle plants in Thailand, its Southeast Asian export hub, halted work on October 10 because of the floods, and a shortage of parts forced it to cut output in nine other countries including Japan. The three plants will be down at least until November 12, the company has said.

Toyota said operating profit for July-September, its second quarter, was 75.39 billion yen ($966 million), far short of an average estimate of 101.3 billion yen in a Reuters survey of 12 analysts.

Net profit dropped 18.5 percent to 80.42 billion yen, while revenue fell 4.8 percent to 4.57 trillion yen. Global vehicle sales slid 4.7 percent to 1.805 million.

In contrast, Nissan last week lifted its profit forecasts as it achieves robust sales growth and limits the impact of a parts shortage from Thailand with substitute procurement. It expects a restart in Thai production next week.

Companies now need to adopt new ideas and move faster, said Tetsuro Ii, chief executive officer of Commons Asset Management in Tokyo.

Some companies, such as Nissan, are doing this well...It's too soon to make a judgment on Toyota's and Honda's long-term prospects, but I can't help but get the impression that they are slow in their reforms, he added.

WITHDRAWS FORECASTS

Before withdrawing its forecasts, Toyota had projected an operating profit of 450 billion yen for the year to March 2012, against a consensus forecast of 486 billion yen in a survey of 21 analysts by Thomson Reuters I/B/E/S.

Toyota said the Thai calamity would force it to keep its Japanese production reduced at least until November 18. It was still undecided on production elsewhere, including in Thailand.

Between October 10 and November 12, Toyota will lose production of about 150,000 vehicles from the supply shortage, it said. This week, its Japanese factories were working at 70 to 80 percent of planned levels, while output in the Philippines, Malaysia, Indonesia, Vietnam and Pakistan was at 40 percent.

Its North American factories, excluding Mexico, were working at 90 percent of planned output.

Toyota had just started to work overtime and weekends in September, having recovered from the March 11 disasters two months ahead of initial plans.

The two disasters have hit Toyota's sales and market share the world over and will likely place it behind General Motors Co and Volkswagen AG this year.

Toyota is still by far the most valuable, with a market capitalization of $113 billion.

But the setback could be short-lived, analysts said, since unlike Honda, its own factories in Thailand were not flooded.

In assessing the impact of the Thai floods on Toyota, we're talking about the people that supply their parts, rather than Toyota itself, said Koji Endo, senior analyst at Advanced Research Japan in Tokyo. So this disaster looks to be a short-term setback rather than a long-term one.

FIGHTING THE YEN

While Ozawa said he expected Toyota's market share to recover in North America and Europe as production levels return from a post-quake nadir, he stressed that the yen's strength posed a huge obstacle.

Through disciplined cost cuts and other improvements, Toyota's parent-only operations were on track to break even next year assuming a dollar rate of 85 yen and sales of 7.5 million vehicles, Ozawa said.

But with the dollar now around 78 yen, he said he was at a loss as to what more to do. The dollar fell to a record low of 75.31 yen in late October, prompting currency intervention by Japanese authorities.

If you asked me whether we have any specific numerical forecasts (with the current dollar rate), I would be in a very tough spot, he said.

It was up to the government to weaken the yen and level the playing field of Japanese exporters against overseas rivals, Ozawa said.

In the meantime, Toyota will take three steps to help offset currency losses and keep its commitment of building at least 3 million vehicles annually in Japan without bleeding profits, he said.

For one, Toyota will try to sell more vehicles in Japan, bringing the ratio of domestic sales to exports from around 1.3 million to 1.7 million now, to 1.5 million each.

It will also try to reduce the number of engines and transmission units it ships out of Japan and will redesign components to allow its suppliers to use cheaper materials in local markets overseas.

Ozawa stressed that closing factories in Japan would not help because more than 90 percent of the facilities were fully depreciated. Toyota also has about the right number of workers to build 3 million vehicles a year, he said.

Toyota's shares have fallen 22 percent so far this year, faring worse than Nissan, which is down about 6.5 percent, but better than Honda, which has fallen 26 percent.

Before the results, Toyota shares closed down 1.7 percent at 2,503 yen, in line with the broader Tokyo market <.TOPX>.

($1=78.0 yen)

(Additional reporting by Mayumi Negishi, James Topham and Hideyuki Sano; Editing by Matt Driskill and Neil Fullick)

Toyota Quake