Honda hoists profit forecast, sees further growth

By Chang-Ran Kim, Asia autos correspondent

TOKYO (BestGrowthStock) – Honda Motor Co lifted its annual guidance far beyond market expectations on Wednesday after cost cuts drove quarterly profit to the strongest in a year and a half, and said it anticipates further growth next financial year.

Japan’s No.2 automaker has weathered the industry’s turmoil better than many rivals as its profitable and dominant motorcycle business cushioned the blow to global car demand from the financial crisis.

Honda’s car business, heavy in fuel-efficient models such as the Civic and Jazz, has also turned up over the past three quarters thanks to government sales incentives such as the United States’ cash-for-clunkers programme last summer.

With its car sales roughly on track to reach 3.6 million vehicles next business year, a top executive said Honda should be able to make an operating profit of about $1.1 billion per quarter, providing a rare insight into the outlook for the financial year starting on April 1.

“Under these sales conditions, I see a fundamental ability to make 100 billion yen in operating profit every quarter,” Executive Vice President Koichi Kondo told a news conference.

That would indicate a full-year operating profit of 400 billion yen for the year to March 2011, or up 25 percent from Honda’s revised guidance of 320 billion yen for this year.

Honda may also benefit from the global recall of millions of vehicles by larger rival Toyota Motor Corp, particularly in the key U.S. market, although Kondo — and analysts — said the opposite could also happen.

“There’s a chance that the image of all Japanese cars will worsen in North America and elsewhere,” said Mitsushige Akino, chief fund manager at Akiyoshi Investment Management. “We just don’t know. There are things we still can’t predict.”

Honda had to initiate a recall of its own last week, saying it would recall some 646,000 of its Fit/Jazz and City models globally due to a faulty window switch after a child died when fire broke out in a car last year.

“Toyota is the front-runner representing Japanese cars,” Honda’s Kondo said. “In that sense, we’re somewhat worried that there may be a knock-on effect on other Japanese brands, but we’ll need a little more time to gauge any impact.”

U.S. auto sales data for January released on Tuesday showed Honda’s seasonally adjusted sales growing just 2.9 percent in an overall market that grew 15 percent.

Honda said on Wednesday its operating profit for the October-December quarter jumped 73 percent to 177 billion yen ($1.96 billion), marking its biggest profit in six quarters.

That beat a mean estimate of about 85 billion yen in a poll of three analysts by Thomson Reuters I/B/E/S.


For the full year to the end of March, the maker of the Civic and other fuel-efficient cars lifted its operating profit forecast to 320 billion from a previous estimate of 190 billion yen, and well above a mean estimate of 237 billion yen in a poll of 20 analysts by Thomson Reuters I/B/E/S.

The new figure represents a 69 percent jump from last year.

Honda kept its forecast for global sales unchanged at 3.4 million cars for this financial year. It attributed the biggest part of the overshoot in operating profit to a 35 billion yen boost from lower spending on research and development.

It now expects net profit to nearly double from last year to 265 billion yen.

The company, headed by CEO Takanobu Ito, had also raised its full-year forecasts in both its first- and second-quarter earnings releases.

Honda is the first of Japan’s top three automakers to report results for the latest quarter.

Toyota, which is grappling with a massive global recall that is forcing it to halt production of eight models in North America this week, is scheduled to announce its results on Thursday.

Earlier on Wednesday, smaller Japanese rival Mitsubishi Motors Corp kept its full-year financial forecasts unchanged.

Denso Corp, the world’s biggest listed auto parts supplier and an affiliate of Toyota, tripled its annual operating profit forecast to 110 billion yen, citing a recovery in global auto production and deeper cost cuts.

“Our latest forecast does not include any impact from Toyota’s production halt because we had made it before Toyota announced the suspension,” senior Denso manager Naohito Tainaka told reporters.

“There will be some impact in the short term but Toyota may boost its output to make up for the suspension by the end of this business year, so it’s difficult to foresee the impact on our earnings.”

Shares of Honda have gained 8 percent since late October, when it nearly tripled its full-year operating profit forecast, outperforming a 1.4 percent increase in the benchmark Nikkei average.

($1=90.51 Yen)

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(Additional reporting by Taiga Uranaka, Elaine Lies and Nobuhiro Kubo; Editing by Michael Watson)

Honda hoists profit forecast, sees further growth