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Honda Posts Surprise First-Quarter Gain, Costs Held
By: Reuters | 25 Jul 2008 | 03:13 AM ET
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Honda Motor posted a surprise 8 percent increase in quarterly net profit after it raised car prices and cut costs, helping it overcome a stronger yen, crumbling U.S. auto market and higher commodity prices.

HONDA
Paul Sakuma / AP

But Japan's No.2 automaker and the world's top motorcycle maker kept its forecast for an 18 percent drop in full-year net profit, cut its operating profit outlook and trimmed its annual global car sales forecast.

The company has outperformed rivals as the U.S. auto market slowed under the weight of soaring oil prices and falling consumer confidence.

Like many other Japanese automakers due to follow with results in the coming weeks, Honda is suffering from a collapse in demand for big, gas-thirsty vehicles in the United States, its biggest market, while also feeling the pinch of weakening West European and Japanese markets.

But unlike its rivals, Honda has managed to keep its North American factories operating near full capacity thanks to a model line-up mostly made up of passenger cars and its manufacturing flexibility, which has helped it sell more Civic and Accord cars instead of the Pilot sport utility vehicle and Ridgeline pickup.

Sales in Asia and Latin America were strong.

Demand for its fuel-efficient vehicles has been so strong, in fact, that some analysts warned that Honda risked losing out on short-term sales opportunities due to a shortage of supply. The bottleneck will be eased after several months, however, as more Civic production kicks off at a new factory in Indiana this autumn.

The company cut its global annual car sales forecast by 1.4 percent to 4.08 million vehicles.

April-June net profit was 179.6 billion yen ($1.7 billion), ahead of an average estimate for 135.4 billion yen in a Reuters poll of eight brokerages.

Operating profit, which excludes earnings made in China, fell 0.2 percent to 221.4 billion yen.

For the year to end-March 2009, Honda kept its forecast for net profit of 490 billion yen, but trimmed its operating profit forecast to 630 billion yen from 650 billion yen.

Consensus forecasts from 18 brokerages call for a net profit of 531.1 billion yen and operating profit of 688.1 billion yen.

The dollar lost 16 yen from the previous year to average 105 yen in the first quarter, while prices of steel, platinum, and other raw materials have soared.

Honda tweaked its dollar exchange rate assumption for the 2008/09 business year to 101 yen from 100 yen, and the euro to 162 yen from 155 yen.

Shares of Honda, the world's fourth-most valuable automaker behind Toyota Motor, Volkswagen and Daimler, have held steady so far this year, performing better than Tokyo's transport sub-index, which has lost 16 percent.

Before the results, Honda ended down 2.1 percent.

Copyright 2009 Reuters. Click for restrictions.
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