Bloomberg News

Honda Misses Profit Estimates, Scraps Forecast on Thailand

October 31, 2011

(Updates with operating income in fourth paragraph.)

Oct. 31 (Bloomberg) -- Honda Motor Co., Japan’s third- largest carmaker, reported second-quarter profit that missed analysts’ estimates and withdrew its forecasts after flooding in Thailand crippled its production in Southeast Asia.

Net income was 60.4 billion yen ($761 million) in the three months ended Sept. 30, compared with 135.9 billion yen a year earlier, the company said in a statement. That missed the 66.1 billion yen average analyst estimate compiled by Bloomberg.

Honda, which made more than 170,000 cars in Thailand last year, scrapped its full-year forecasts as it reels from a disaster that’s inundated 10,000 factories and flooded more than 80 percent of Thailand’s 77 provinces since July. Automakers will produce 300,000 fewer vehicles than expected this year, according to the nation’s automobile industry group.

Honda shares have fallen 22 percent since August, the steepest drop among Japan’s three biggest carmakers. The stock fell 3.7 percent to 2,406 yen today.

Second-quarter operating profit fell 68 percent to 52.5 billion yen, below the 78.5 billion yen average analyst estimate, with the company blaming the strong yen for eroding earnings. Revenue also missed analyst estimates.

Toyota Motor Corp., Asia’s biggest carmaker, said production was disrupted in Thailand, Indonesia, Vietnam, the Philippines, Japan and the U.S. this month after the floods interrupted supply of components. Nissan Motor Co., which said its plants haven’t been flooded, has said it plans to keep its Thai factory closed until Nov. 4 because of a shortage of parts.

Supply-Chain Disruptions

Toyota has said production of about 6,000 vehicles, including the Prius, the world’s best-selling hybrid car, could be affected, due to reduced production at four of its domestic plants.

Honda stopped Thai production this month after a factory became flooded. Supply-chain disruptions led its factory in neighboring Malaysia to stop from last week and the company hasn’t determined when the facilities will reopen. The ripples have spread to Japan, where Honda pushed back the introduction of the Life Diva minicar because of delays in deliveries of aluminum wheels from Thailand.

Suparat Sirisuwannangkura, head of the Federation of Thai Industries’ automotive club said Oct. 28 that automakers may need to wait until December before resuming production, resulting in only 1.5 million vehicles being produced in the country this year, or 17 percent fewer than the group had anticipated before the disaster.

Disaster After Disaster

For Honda and its domestic rivals, who rely on Thailand as a production hub for vehicles sold across Southeast Asia, the floods have resulted in their biggest supply-chain disruption since the March 11 earthquake and tsunami that ravaged Japan. Kohei Takahashi, an analyst at JPMorgan Chase & Co., estimates the Thai floods and the ensuing supply-chain disruptions may cost Japan’s three-biggest carmakers more than 35 billion yen of operating profit and 142 billion yen in sales this year.

Japanese carmakers are also coping with a yen that’s eroding the value of overseas sales. Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen, helping the currency weaken from a Post-World War II high.

In the U.S., Honda expects to see an increase in sales in October, said John Mendel, who leads the company’s U.S. sales efforts. That contrasts with the average 2.5 percent drop estimated by five analysts surveyed by Bloomberg.

--Editor: Young-Sam Cho, Terje Langeland

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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