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Honda avoids Q1 loss, raises profit forecast

Honda avoids Q1 loss, raises profit forecast
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First Published: Mon, Aug 01 2011. 01 17 PM IST
Updated: Mon, Aug 01 2011. 01 17 PM IST
Tokyo: Honda Motor Co avoided an expected loss and raised its annual profit outlook by more than a third on Monday after it reported a 90% fall in quarterly operating profit, as it rebounded quickly from a severe parts shortage.
Japan’s No.3 automaker suffered the biggest drop in production of any carmaker from the March disaster, due mainly to bad timing for the scheduled delivery of parts.
The supply shortage coincided with the full remodelling this spring of its Civic model in the key US market, where sales of the popular car fell by a third in June.
Honda’s Japanese production halved in June from the previous year, even as Nissan Motor Co eked out a rise and the decline at Toyota Motor Corp shrank to 16% from 78% in April.
“I think Honda deserves some credit for the first quarter, which some expected the firm to post losses,” said Naoki Fujiwara, a fund manager at Shinkin Asset Management.
“Heavy reliance on the US market is both Honda’s strong and weak points. The automaker has not yet been able to develop market share in emerging countries and I think Honda is lagging behind Toyota in hybrid technology.”
Honda, Japan’s No.3 automaker, said on Monday it made an operating profit of ¥22.58 billion ($292.5 million) in April-June, compared to a ¥234.4 billion profit a year ago. The result was better than the average estimate of a ¥67 billion loss in a survey of seven analysts by Thomson Reuters.
It posted a net profit of ¥31.8 billion, down 88% from the previous year, while revenue fell 27% to ¥1.715 trillion.
For the full year to March 2012, the maker of Civic and Accord cars now expects an operating profit, which excludes earnings from China, of ¥270 billion, or 35% more than the previous forecast of ¥200 billion. A poll of 21 analysts produced a forecast of ¥407.7 billion .
Honda raised its annual net profit forecast to 230 billion yen from 195 billion yen.
A further strengthening in the yen has added to Honda’s woes, while surging raw materials prices and escalating fears over the health of the global economy weigh on the overall industry.
Still, with full restoration of the supply chain only a matter of time, Honda has suggested it will ramp up production in the second half and analysts said it could easily overshoot its guidance.
The main factors behind Honda’s upbeat outlook include higher expected sales, with Honda forecasting a rise of 135,000 vehicles to 3.435 million vehicles for 2011-12, and cost-cutting efforts.
Honda also changed its euro assumption to a more favourable ¥112 from ¥110, while keeping its dollar assumption at 80 yen.
Honda’s chief financial officer, Fumihiko Ike, said once Honda is able to build cars without limitations, he expected sales to pick up, including in North America.
He cautioned however, that a US economy plagued by weak housing starts, a high jobless rate and the debt crisis would make for a tough sales environment.
“I think carmakers will start offering bigger incentives once supply is available and consumers seem to know this and are waiting for them,” he told a news conference. “It will be a very competitive market then.”
Shares in Honda have fallen 4% so far this year, underperforming a 1% drop in Tokyo’s transport sector subindex .
Before the results were announced, Honda shares closed up 1.5% at ¥3,125, outperforming the benchmark Nikkei average and a rise in most other auto stocks.
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First Published: Mon, Aug 01 2011. 01 17 PM IST
More Topics: Company Results | Honda Motors | Cars | US | Japan |