Honda Motor sees a tough year if the yen firms and dents export earnings, but it should still increase market share in Europe and the United States with its Civic and CR-V models and a new Accord sedan.
Honda, which last year overtook Nissan Motor as Japan's No.2 automaker, posted a 19.7% drop in fourth-quarter net profit due to a big one-off accounting gain a year earlier.
While quality-related expenses ballooned last year to pay for a string of big recalls of vehicles around the world, analysts say Honda's prospects for steady growth are good thanks to its fleet of popular, fuel-efficient cars amid high fuel prices.
As big U.S. rivals scale back production to reflect a loss of customers to Japanese brands, Honda is to add more capacity in North America, including a new factory in Indiana next year.
Koji Endo, an analyst at Credit Suisse, said Honda's projection of falling profits this year was a surprise. "The forecast for 2007/08 is extremely weak," he said, adding he would keep his price target of 4,000 yen a share unchanged for now.
For the year to March 31, 2008, Tokyo-based Honda forecast a 2.9% decline in net profit to 575 billion yen ($4.86 billion), against an average forecast of 641.4 billion yen in a survey of 16 brokers by Reuters Estimates.
Profit was 592.32 billion yen in the year just ended.
Honda expects an operating profit of 770 billion yen, versus 851.88 billion yen in 2006/07. The carmaker's forecasts are based on an assumed dollar rate of an average 115 yen for the year, compared with a more favourable 117 yen in 2006/07.
Earnings Likely to Improve
Honda Executive Vice President Satoshi Aoki told a news conference underlying earnings would likely improve slightly this year after adjustment for the expected currency move.
"All in all, our fundamental business remains robust and we expect continued growth, especially in North America and Europe."
Honda said on Tuesday its global car output grew 7.5% to more than 3.7 million cars in the year ended in March. In 2007/08, Honda expects global car sales to rise 7.7% to 3.935 million units.
Other domestic automakers such as Toyota Motor are also expected to keep expanding profits this year, although the pace is likely to slow after double-digit gains last year.
For the January-March final quarter, Honda's net profit fell to 176.18 billion yen, ahead of a consensus market estimate for 148.7 billion yen.
Quarterly operating profit fell 26.6% to 250.22 billion yen from the previous year, when it booked a one-off 138 billion yen pension-related gain.
Fourth-quarter sales grew 9% to 3.088 trillion yen.
Shares in Honda, the world's third-most valuable automaker with a market capitalisation of $63 billion -- double that of General Motors and Ford Motor combined -- fell 13% in January-March, underperforming Tokyo's transport sector subindex ITEQP, which lost 6 percent.
Ahead of the results, Honda shares closed down 2% at 3,990 yen, while the transport sector lost 1.9%.
Among other Japanese automakers, Toyota unit Daihatsu Motor forecast a sharp drop in profits this year after a strong rise in 2006/07, when it overtook Suzuki Motor to become the top seller of 660cc minivehicles for the first time in its 100-year history.
Truck maker Hino Motors, also a subsidiary of Toyota, predicted another double-digit fall in earnings this year on weak truck demand at home.