Bloomberg News

Honda Forecasts 63% Profit Drop on Parts Shortages, Strong Yen

June 14, 2011

June 14 (Bloomberg) -- Honda Motor Co., Japan’s third- largest carmaker, forecast a bigger-than-estimated 63 percent decline in full-year profit, citing production disruptions on parts shortages and the strong yen.

Net income may fall to 195 billion yen ($2.4 billion) in the 12 months ending March 31 from 534.1 billion yen a year earlier, the Tokyo-based company said in a statement today. That compares with the 375 billion yen average of 10 analyst estimates compiled by Bloomberg in the past 28 days.

Honda predicted a larger decline in profit than Toyota Motor Corp., as both companies work to restore full operations after the temblor and tsunami on March 11 damaged parts factories and caused power shortages. Honda’s global vehicle sales may decline 6 percent this year to 3.3 million, while Japan’s strengthened currency will also erode profit, the company said today.

“The outlook is worse than I expected,” said Koji Endo, an analyst at Advanced Research Japan in Tokyo. “It seems as though Honda won’t be able to recover in the second half, even though Toyota and Nissan may be able to.”

Full-year profit at Toyota, Japan’s biggest carmaker, may decline 31 percent to 280 billion yen in the year started April 1 as global vehicle sales decrease 0.9 percent to 7.24 million, the company said June 10. Nissan Motor Co., the nation’s second- largest automaker, has yet to announce its full-year forecast.

Operating Profit

Honda’s full-year revenue may drop to 8.3 trillion yen from 8.94 trillion yen last fiscal year, the company said in today’s statement. Operating profit may decline to 200 billion yen from 569.8 billion yen, it said.

Output of the Civic model should normalize by November and global production recover to regular levels by the end of the year as the critical shortage of parts eases, Fumihiko Ike, senior managing officer and director, said at a briefing in Tokyo.

“It will take us until the end of the year to be able to produce all models at normal levels,” he said. “We’re offering incentives to potential buyers of the new Civic in the United States.”

The carmaker’s output in Japan should normalize by the end of June, Honda said today in its statement.

Honda has “no way” to prevent its U.S. market share from shrinking due to limited supply, Ike said May 17. The company’s full-year vehicle sales in North America may drop 11 percent to 1.3 million, it said today.

Civic, Accord

The maker of Civic compact cars and Accord sedans sold 23 percent fewer vehicles in the U.S. last month compared with a year earlier, while industrywide deliveries in the world’s second-largest auto market declined 3.7 percent. Honda’s sales in China, the world’s largest vehicle market, dropped 32 percent the same month.

“It may be difficult for Honda to fully recover and catch up during this fiscal year,” said Issei Takahashi, an analyst in Tokyo at Credit Suisse Group AG. “For its first-quarter earnings, it’s very likely for the numbers to be worse than the post-Lehman bankruptcy period.”

The strengthened yen, which reduces the repatriated value of Honda’s overseas earnings, may cut operating profit by 91 billion yen, Honda said. Gains in the Japanese currency reduce the repatriated value of the company’s overseas earnings.

The Japanese currency advanced 15 percent against the U.S. dollar last year and reached a postwar record of 76.25 on March 17. Honda is basing this year’s profit forecast on an exchange rate of 80 yen to the dollar. Each 1 yen gain against the dollar reduces profit by 15 billion yen, Ike said.

The automaker expects 40 billion yen in quake-related costs and 80 billion yen for raw materials this year, Ike said. An increase in research and development spending for new models and technology will also erode profit, Honda said in today’s statement.

Honda rose 0.7 percent to 2,931 yen at the 3 p.m. close of Tokyo trading, before the forecast was announced. The stock has declined 14 percent since March 10, the day before the earthquake.

--With assistance from Chua Kong Ho in Shanghai. Editors: Terje Langeland, Chua Kong Ho

To contact the reporters on this story: Anna Mukai in Tokyo at; ???? in Tokyo at

To contact the editor responsible for this story: Chua Kong Ho at

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