Honda Motor posted a much bigger than expected 85.6 percent tumble in quarterly net profit
on Friday, and forecast a weak year ahead hit by a stronger yen, rising commodities prices and a soft U.S. car market.
In the past year, Honda, Japan's second-biggest automaker and the world's top motorcycle maker, has been hit by a gain of around 10 percent in the yen versus the dollar, which erodes the value of its exports and repatriated earnings.
Prices of steel, platinum, rhodium and other raw materials have also continued to climb, countering growing sales of models such as its CR-V crossover and Fit subcompact.
The industry also faces a tough sales environment in the crucial U.S. market. An economic slowdown has squeezed demand, especially for big SUVs and other light trucks in light of
record-high gasoline prices, but Honda's range of fuel-efficient vehicles mean it has fared better than U.S. rivals General Motors and Ford Motor
For the business year that started this month, Honda forecast a net profit of 490 billion yen ($4.7 billion) and operating profit 650 billion yen, down 18 percent and 32 percent, respectively.
Consensus forecasts from 20 brokerages call for a net profit of 575.5 billion yen and operating profit of 725.5 billion yen.
January-March net profit was 25.4 billion yen, hit by a fall in the value of the company's interest rate-related derivatives.
The result lagged by far an average estimate of 143.9 billion yen in a Reuters Estimates poll of 20 brokerages.
Fourth-quarter operating profit, which excludes earnings made in China, fell 32.5 percent to 168.8 billion yen, while revenue fell 1 percent to 3.056 trillion yen.
Analysts said Honda was better-positioned than most, including domestic rivals Toyota Motor
and Nissan Motor, to weather a downturn in the United States thanks to it range of fuel-efficient cars, and a flexible manufacturing system that allows it to adjust production more effectively to shifting market needs.
But they also noted that Honda's spending on sales incentives in the United States remains high as rivals adjust inventory levels.
Honda set its dollar exchange rate assumption for the 2008/09 business year at 100 yen and the euro at 155 yen.
On Thursday, small-car maker Suzuki Motor forecast its first profit decline in seven years, also citing a weak dollar and higher input costs, despite forecasts for vehicle sales to grow.
Shares of Honda, the world's fourth-most valuable automaker behind Toyota, Volkswagen and Daimler, have fallen 11 percent in the year to date, broadly in line with Tokyo's transport sub-index ITEQP, which has lost 13 percent.