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Honda profits dip amid tough competition, rising costs

Honda profits dip amid tough competition, rising costs
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First Published: Wed, Apr 25 2007. 04 12 PM IST
Updated: Wed, Apr 25 2007. 04 12 PM IST
Tokyo: Japan’s Honda Motor reported a small drop in annual profits, snapping a five-year record-breaking streak as it battles tough competition in its home market and higher costs.
The automaker predicted a further decline in profits this year owing to high raw material costs.
Honda posted net earnings of 592.3 billion yen ($5) for the fiscal year to March, better than its own forecast for a 560 billion yen profit but 0.8% less than the previous year’s 597.0 billion.
Operating profit dropped by 2% to 851.9 billion yen while revenue grew by roughly 12% to a record 11.09 trillion yen, helped by a weaker yen, the automaker said in a statement.
Honda said the decline was mainly the result of the negative impact of the change in its model mix, soaring raw material costs, increased spending on research and development as well as higher general expenses.
The absence of a one-off gain booked a year earlier from pension related gains also weighed on Honda’s bottom line, offsetting the positive impact of higher revenue, cost reduction effects and a weaker yen, it added.
“Even though we saw a decline in profits, sales especially in four-wheel vehicles saw growth in North America, Asia as well as Europe,” said Honda vice president Satoshi Aoki.
Honda’s automobile sales in Japan decreased by 3.4% in the year to 672,000 vehicles, while overseas sales were up 10.6% to 2.980 million.
Honda forecast a further decline in earnings in the current fiscal year to March 2008, when it expects net profit to fall 2.9% to 575 billion yen and operating profit to slide 9.6 percent to 770 billion yen.
Sales, however, are expected to grow 6% to 11.75 trillion yen but the boost to earnings will be offset by rising raw materials costs, increased research and development spending and capital investment, Aoki said.
The automaker said it was also basing its forecasts on the assumption that the yen will strengthen this year against other major currencies.
The earnings downturn at Honda follows five consecutive years of record profits at Honda, which like other Japanese automakers has enjoyed brisk sales in the US market even as local automakers General Motors and Ford struggle.
For the fourth quarter alone Honda’s net profit fell by 19.7% from a year earlier to 176.1 billion yen.
Operating profit slumped by 26.6% to 250.2 billion yen while revenue increased by 9% to 3.09 trillion yen.
The results contrast with the fortunes of Japan’s number one automaker Toyota, which is expected to report later this month a seventh consecutive year of record profits after overtaking General Motors as the global top seller.
Nissan Motor Co., however, has forecast an 11% drop in net profits in the year to March due to sluggish sales, and is expected to unveil fresh restructuring measures when it announces its annual results on Thursday.
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First Published: Wed, Apr 25 2007. 04 12 PM IST