Honda Earnings Leak, Management Slashes Guidance

honda civic hybrid

Photo: Honda

(Updates with China forecast in third paragraph.)Oct. 29 (Bloomberg) — Honda Motor Co., Japan’s third- largest carmaker, cut its full-year profit forecast after Chinese consumers shunned Japanese brands amid a territorial dispute between Asia’s two-biggest economies. The shares fell.

Net income will probably reach 375 billion yen ($4.7 billion) in the year ending March, 20 per cent lower than its forecast in July, the Tokyo-based maker of the Accord sedan said in a statement today. Honda, the first major Japanese automaker to report this earnings season, also lowered its projections for operating profit and revenue.

The company cut its full-year China sales estimate 17 per cent after the Japanese government’s purchase of a group of islands claimed by both countries triggered violent demonstrations. The aversion toward Japanese brands has turned into an opportunity for Germany’s Volkswagen AG and South Korea’s Hyundai Motor Co. to pick up market share in the world’s largest auto market.

“China is a major risk, and this is causing confidence to wane,” Mitsushige Akino, who oversees about $626 million in assets at Ichiyoshi Investment Management Co. in Tokyo. “Risks will persist as long as the company fails to calculate the financial toll.”

The company cut its operating profit forecast 16 per cent to 520 billion yen and reduced its revenue projection 4.9 per cent to 9.8 trillion yen. Honda also lowered its annual vehicle-sales target to 4.12 million units, versus the earlier 4.3 million target, citing China, Europe and South America.

Accidental Release
Honda fell as much as 5.8 per cent to 2,370 yen before trading at 2,417 yen at 1:46 p.m. as the company released earnings results three hours ahead of schedule. Honda shares have fallen more than 20 per cent since the 2012 high in mid- March as the yen strengthened and China protests flared.

The company said it accidentally uploaded the information before its scheduled release.

Analysts have cut their earnings estimates for Japanese automakers in the past month amid mounting concerns over Chinese sales. For Honda, full-year average earnings estimates by analysts had fallen more than 15 per cent in the past four weeks, according to data compiled by Bloomberg. Still, the latest 487.9 billion yen consensus is higher than Honda’s forecast.

China Slump
Honda, which saw September sales in China plunge 40 per cent, is not alone in suffering in the country. Toyota Motor Corp. has said it may fail to meet its target to sell 1 million units in China in 2012 after last month’s deliveries in the market tumbled 49 per cent — the most in a decade. Nissan Motor Co., the biggest Japanese carmaker in China, may cut its operating profit estimate by as much as 100 billion yen when the company reports Nov. 6, one day after Toyota, the Nikkei newspaper reported last week.

Honda cut its China sales forecast to 620,000 units, compared with its previous estimate of 750,000. It kept the outlooks for Japan and North America unchanged.

The decades-long territorial dispute, involving islands claimed by both countries called Senkaku in Japan and Diaoyu in China, was reignited in April, when Tokyo Governor Shintaro Ishihara, a longtime critic of China, proposed buying the islands. That led Prime Minister Yoshihiko Noda’s administration to purchase the islets last month, escalating tensions between the two nations and sparking violent protests across China.

U.S. Recovery
While second-quarter profit missed the average analyst estimate by 25 per cent, net income rose 36 per cent as deliveries in the U.S. — Honda’s biggest market — jumped 45 per cent, driven by demand from U.S. buyers purchasing vehicles at the fastest annualized rate since 2008.

Honda, which in September introduced the fully redesigned Accord mid-size sedan, its best-selling model in the U.S., plans to sell 1.74 million vehicles in North America this fiscal year. Like Toyota and Nissan, Honda benefited from a recovery in U.S. demand as sales of cars and light trucks in the U.S. ran at an annualized rate of 14.94 million last month, the best pace since March 2008.

In Japan, Honda’s third-biggest market, second-quarter sales growth slowed to 31 per cent, after doubling the preceding quarter, as government subsidies on fuel-efficient models expired.

In Europe, automobile deliveries rose about 10 per cent last quarter, though the company cuts its annual forecast for the region by 11 per cent to 205,000 units. By comparison, industrywide sales shrank 9.2 per cent to 2.83 million units last quarter, according to the Brussels-based European Automobile Manufacturers’ Association.

Issei Takahashi, a Tokyo-based analyst at Credit Suisse Group AG, said the results also fuelled concern about Honda’s motorcycle business in Indonesia. In motorcycles, an industry where Honda ranks first globally, the company lowered its full- year sales forecast by 6.3 per cent.

Honda revised its fiscal year forecast on the yen to the euro to 103, versus its previously estimated rate of 105. It kept the dollar projection at 80.

–With assistance from Ma Jie in Tokyo. Editors: Young-Sam Cho, Dave McCombs

To contact the reporters on this story: Anna Mukai in Tokyo at [email protected]; Yuki Hagiwara in Tokyo at [email protected]

To contact the editor responsible for this story: Young-Sam Cho at [email protected]

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