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Honda gets 40% decline in profit

31 January 2011 08:25 (UTC +04:00)

Baku - APA-Economics. Honda Motor Co. on Monday reported a 40% drop in net profit in the latest quarter from a year earlier, its first profit contraction in five quarters as the company’s cost-cutting efforts were unable to offset the yen’s strength and slack domestic sales, Wall Street Journal reported.

Japan’s third-largest auto maker by sales volume posted a net profit of 81.12 billion yen ($988.4 million) in the October-December quarter, down from 134.63 billion yen a year earlier. It was the first year-to-year decline since the July-September quarter of 2009.

The result undershot the average forecast for a 93.03 billion yen profit in a survey of nine analysts compiled by the Nikkei.

The figures suggest the strong yen is biting more sharply into the profits of Japanese auto makers compared with previous quarters, when cost-cuts and government purchasing subsidies for fuel-efficient carsâ€”which expired in Septemberâ€”helped to mitigate some of the pain.

Honda said the strong yen reduced its operating profit by 44.5 billion yen in the three months ended December. The Japanese currency averaged 83 yen against the dollar and 112 yen against the euro in the quarter, from 89 yen and 133 yen a year earlier, Honda said.

The tougher business environment comes as Japanese car companies face stronger competition with Asian rivals. South Korea’s Hyundai Motor Co. last week reported a nearly 50% jump in net profit for the fourth quarter.

Honda’s earnings are usually seen as a barometer for the rest of the Japanese auto sector as they tend to come before other major companies in the industry. Toyota Motor Corp. will release its earnings on Tuesday of next week, while Nissan Motor Co. will report the following day.

Honda’s sales fell 5.8% to 2.110 trillion yen in the period from 2.241 trillion yen, while operating profit sagged 29% to 125.65 billion yen from 176.97 billion yen.

For the current fiscal year through March, the company, the world’s biggest motorcycle maker by volume, raised its net profit outlook to 530 billion yen from 500 billion yen previously forecast. The company lowered its sales forecast to 8.900 trillion yen from 9.000 trillion yen. It now expects an operating profit of 620 billion yen, up from its previous projection of 500 billion yen.

The outlook is based on an assumption that the dollar will average 80 yen and the euro 105 yen for the fourth quarter ending March.

Honda reports its earnings under U.S. accounting standards.