Bloomberg News

Honda Profit Misses Estimates Amid Slowing Southeast Asia (2)

October 30, 2013

Honda Motorcycles

Honda Motor Co.'s CB1300 Super Bol D'or, left, and CB400 Super Four motorcycles stand on display at a media event in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Honda Motor Co. (7267), Japan’s third-largest carmaker, reported second-quarter profit that fell short of analysts’ estimates amid slowing motorcycle sales and demand in Southeast Asia.

Net income climbed 46 percent to 120.4 billion yen ($1.2 billion) in the three months ended Sept. 30, compared with 82.2 billion yen a year earlier, the Tokyo-based company said in a statement today. That trailed the 139 billion yen average of seven analyst estimates compiled by Bloomberg. The company maintained its full-year profit forecast for 580 billion yen.

Honda, also the world’s largest maker of motorcycles, today cut its full-year forecast for two-wheeler sales, citing weaker-than-expected demand in Indonesia, Vietnam and India. Slowing demand in Southeast Asia was a blemish in what’s otherwise been a earnings boom for Japanese exporters as the weaker yen drives up profits.

“The motorcycle business hasn’t expanded as the company expected,” said Satoru Takada, an auto analyst with Toward the Infinite World Inc. “If there’s any concern for Honda in the second half, it will be the motorcycle business and the economic slowdown in Southeast Asia.”

Honda shares rose 1.3 percent to close at 3,965 yen in Tokyo trading before the company reported results. The Nikkei 225 Stock Average climbed 1.2 percent.

Abenomics Help

Honda is among Japanese exporters benefiting from Prime Minister Shinzo Abe’s economic policies, which have helped weaken the country’s currency. A weaker yen increases the value of repatriated earnings and is giving Japanese carmakers an edge over rivals including General Motors Co. (GM:US) and Hyundai Motor Co.

The yen has fallen about 12 percent against the dollar in 2013, creating a tailwind for Japanese brands as they face the most competitive lineup of vehicles in a generation from U.S. automakers GM, Ford Motor Co. and Chrysler Group LLC.

Before Abe’s election, the Japanese currency hobbled exporters for years, appreciating to a postwar high of 75.35 to the dollar in October 2011 from about 115 in a four-year period. The yen began tumbling in late 2012 as polls showed Abe, who called for unprecedented monetary-easing policies that would weaken the currency, would lead his Liberal Democratic Party to a win in the nation’s parliamentary elections.

Auto Incentives

Honda deliveries in the U.S., its biggest market, gained 13 percent in the July-September quarter, according to the company. Sales were boosted by the Civic compact, the best-selling small car this year whose deliveries rose 8.8 percent and the Accord sedan, which increased 14 percent this year.

The automaker managed to keep incentives low even as sales expanded. The average incentive spending per vehicle fell 30 percent to $1,611 in the first nine months of this year, the lowest level among the six biggest car manufacturers in the U.S., according to market researcher Autodata.

Japan deliveries rose 2.5 percent to 179,731 units in the quarter, helped by the revamped Fit compact, Honda’s best-selling model in the country.

Honda introduced the new Fit on Sept. 6, booking 62,000 units in sales and advance orders in the first four weeks, four times what Honda had forecast. About 70 percent of the sales and orders were for hybrids, according to Honda.

New Fit

“It’s a long-awaited model and a very important one for Honda’s share price,” said Kota Yuzawa, an analyst with Goldman Sachs Group Inc. in Tokyo, who has a buy rating on the stock. “The success of the model will be important to Honda’s earnings mainly in the second half this year.”

In China, where Japanese carmakers count the April-to-June quarter into the July-to-September earnings, Honda deliveries fell 2 percent in the three-month period.

Things are starting to look up for the country’s automakers in China, the world’s largest auto market. Honda’s sales doubled in September to the highest level in 21 months, helped by demand for the Accord and Crider sedan, the company’s first model developed in China for the local market, according to Honda.

Motorcycle Sales

The company today cuts its full-year projection for motorcycle sales in Asia, excluding Japan, to 8.13 million units from 8.35 million.

The end of government incentives also sent vehicle deliveries in Thailand down 22 percent in the July-September quarter. Honda had projected in April that fiscal-year deliveries in Asia excluding Japan to expand by 18 percent, according to the company.

Honda said separately that it will dissolve Honda Soltec Co., a wholly owned solar unit set up in December 2006.

“The solar business is such a competitive field,” Tetsuo Iwamura, Honda executive vice president, said today at an earnings press conference. “Silicon-based panels used to be expensive but prices have come down quite a bit,” contrary to the company’s expectations, he said.

The carmaker also said it will sell its shares in Honda Elesys, a manufacturer of car-control electronics, to precision-motor maker Nidec Corp. (6594)

To contact the reporter on this story: Ma Jie in Tokyo at jma124@bloomberg.net

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


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