Toyota Motor Corp on Tuesday posted a worse-than-expected 25 percent drop in quarterly profit and cut its annual output target, as the Japanese firm battles surging material costs and a persistent semiconductor shortage.

The world's biggest automaker by sales also warned that it remained difficult to predict the future after posting its fourth consecutive quarterly profit decline, underlining the strength of business headwinds it faces.

During the coronavirus pandemic, Toyota fared better than most car makers in managing supply chains. However, it fell victim to the prolonged chip shortage this year, cutting monthly production targets repeatedly.

"The business environment is changing dramatically, such as the rapid changes of foreign exchange rates, raising interest rates, soaring materials prices, and more," Toyota's chief accounting officer Masahiro Yamamoto told analysts.

Operating profit for the three months ended September fell to 562.7 billion yen ($3.79 billion), well short of an average estimate of 772.2 billion yen in a poll of 12 analysts by Refinitiv. Toyota reported a profit of 749.9 billion yen a year earlier.

Toyota said it now expects to produce 9.2 million vehicles this fiscal year, down from the previously forecast 9.7 million but still ahead of last financial year's production of 8.6 million units.

Toyota had told several suppliers it was setting a global target for the current business year of 9.5 million vehicles and signaled that the forecast could be lowered, depending on the steel supply, Reuters reported last month.

Amid the gloom, shares in Toyota fell around 2 percent on Tuesday, versus a 0.33 percent rise in the Nikkei average.

Toyota's chief purchasing executive told analysts that the global auto chip shortage continues due to a slow recovery of supply, as chipmakers battle natural disasters and COVID lockdowns.

Still, the company stuck to its full-year operating forecast of 2.4 trillion yen for the fiscal year through March 31.

Toyota said last week its global production rebounded by 30 percent in the quarter that ended in September, but warned shortages of semiconductors and other components would continue to constrain output in coming months.

Last month, it warned that it might not meet its 9.7 million vehicle production goal this financial year due to chip shortages.

The yen has plunged around 30 percent this year against the U.S. dollar, but the benefit of the cheap yen – making sales overseas worth more – has been offset by soaring input costs. Toyota estimated in August that materials costs for the entire year would be 1.7 trillion yen, a 17 percent increase from the previous estimate.

(Source: Reuters with edits)