UPDATE 2-Honda profit climbs as Fit subcompact pays off

Yoko Kubota
Wednesday, 30 Oct 2013 | 10:48 AM ET

* Q2 oper profit up 70 pct, full-year outlook unchanged

* Japan demand strong for key Fit subcompact

* Weak yen, strong U.S. sales seen boosting annual profit to 5-year high

(Recasts to focus on Fit subcompact, adds currency impact)

TOKYO, Oct 30 (Reuters) - Honda Motor Co is on track for its best annual profit in five years and a rosier longer-term future, boosted by the popularity of the new Fit subcompact which left the company struggling to keep up with demand.

Japan's third-largest automaker kept its operating profit target for the year to next March unchanged at 780 billion yen ($7.95 billion), up 43 percent from the year before, boosted by a weaker yen and strong sales in the United States, its biggest market.

The maker of the Civic compact and Accord sedan said demand for the Fit, which is being positioned as a top-selling model worldwide and made its global sales debut in Japan in September, was stronger than expected and backlogs had emerged.

"We are doing our best to speed up the Fit delivery dates but there is a limit to what the suppliers can supply and the capacity of our plants," Executive Vice President Tetsuo Iwamura told an earnings briefing.

The Fit is essential to the company's ambitious sales target of 6 million vehicles by end-March 2017, compared with a record 4.01 million in the last financial year, and it required heavy spending to expand or build new plants.

For the July-September quarter, Honda posted an operating profit of $1.75 billion, or 171.4 billion yen, up from 100.8 billion yen a year ago. The result compared with the average estimate of 180.8 billion yen in a Thomson Reuters I/B/E/S poll of six analysts.

Foreign exchange moves, largely the yen's weakening against the dollar, boosted quarterly operating profit by 93.6 billion yen, although marketing costs and a rise in depreciation ate into that gain.

The Japanese currency has weakened to around 98 yen against the dollar from 79 yen about year ago, boosting profits both from its export business and from the conversion of money made overseas back into the yen.

Honda posted 13.1 percent sales growth in the United States, where it is the fifth biggest carmaker, helped by strong sales of the Accord and Civic.

Globally, Honda kept its car sales forecast for the 2013/14 financial year at 4.43 million vehicles.

Higher-than-expected demand for the Fit caught Honda's parts suppliers by surprise. Honda has received 82,000 orders for the subcompact in a little over a month and the company has back orders for more than 60,000 vehicles, Iwamura said.

Honda will begin operating a new plant in Mexico in the spring of 2014 to manufacture the Fit, with U.S. sales due to start around the same time.

Iwamura said a region of concern for Honda was Thailand, where sales have slowed after an incentive programme for first-car buyers ended.

Toyota Motor Corp and Nissan Motor Co also saw sales drop in Thailand, Southeast Asia's largest auto market, by more than one-fourth in the last quarter.

Honda is the first of Japan's big three automakers to announce quarterly results. Nissan, Japan's second-biggest carmaker, said on Wednesday that it is moving its earnings date to Nov. 1 from Nov. 5, while market leader Toyota will announce on Nov. 6. ($1 = 98.0900 Japanese yen)

(Editing by Edmund Klamann and David Cowell)

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