Honda fuel-saving cars plump profits by 8.1%
Posted on Saturday, July 26, 2008
Honda Motor Co., Japan’s second-largest automaker, posted an unexpected 8. 1 percent gain in fiscal first-quarter profit after record gasoline prices spurred demand for its fuel-efficient Fit and Civic cars.
Net income totaled $ 1. 7 billion for the three months that ended June 30, from $ 1. 54 billion a year earlier, the company stated in a release Friday. The result was more than the $ 1. 12 billion median estimate of six analysts compiled by Bloomberg.
Sales fell 2. 2 percent to $ 26. 79 billion.
Honda boosted U. S. sales of the Fit, the most fuel-efficient small station wagon sold in the country, and cut rebates for dealers as gasoline prices above $ 4 a gallon caused drivers to opt for smaller cars.
“This was a surprise and will be a buffer for Honda’s full-year earnings,” said Ichiro Takamatsu, chief investment officer at Tokyo-based hedge fund Alphex Investments Co. “The company has got one of the strongest brands in Asia and was the best performer in North America where everyone else was struggling.”
Honda’s American depositary receipts fell 81 cents, or 2. 3 percent, to $ 33. 95 in New York Stock Exchange composite trading.
Honda is the only major carmaker to have increased sales in the U. S. this year, where it surpassed Chrysler LLC as the fourth-biggest seller in May and June. Its Fit gets 34 miles per gallon in highway driving, according to a U. S. government Web site.
Kia Motors Corp. and Fiat SpA, both of which specialize in small cars, reported higher earnings this week. That contrasts with an $ 8. 7 billion loss for Ford Motor Co., as the maker of the F-150 pickup and Explorer sport utility vehicle closes factories.
“Sales of SUVs will continue to be weak, while smaller cars will do better,” said Paul Heaton, who manages $ 500 million in Japanese equities at Pyrford International Ltd. “They’ve been able to swing round and produce a lot more smaller cars quickly.”
Honda reiterated its net income forecast for the year that ended March 31. Honda in April said net income may fall 18 percent in the full-year period. It cut its operating profit forecast by 3. 1 percent and reduced its sales forecast to 4. 08 million vehicles from 4. 14 million vehicles.
Among affiliates, Guangzhou Honda Automobile Co. and Dongfeng Honda Automobile Co. raised sales in China by 15 percent to 114, 837, thanks to higher demand for the CR-V sport utility vehicle.
“Honda’s forecast seems overly pessimistic,” said Tatsuya Mizuno, a director at Fitch Ratings in Tokyo.
“Unlike other carmakers, sales are growing in the U. S., the yen is weaker than the original assumption and there is growth in emerging markets.”
The company will build 50, 000 fewer Pilot and other light trucks than initially planned in North America, Executive Vice President Koichi Kondo said at a news conference Friday in Tokyo. In contrast, it will increase production of Civics by 20, 000 units in North America.
Sales in Asia outside of Japan and China grew 18 percent to 221, 000 vehicles. In North America, sales dropped 1. 1 percent in the quarter to 460, 000. Domestic sales slumped 5. 9 percent.
Operating profit dropped 0. 2 percent, Honda reported. The company reduced spending on research and development by 3. 1 percent in the period, increasing profits.
Earnings were “higher than expected” because the company hasn’t set aside U. S. incentives last quarter, Kondo said. Honda will book the cost in the second quarter, he said.
The company based its earnings on exchange rates of 105 yen to the dollar and 164 yen per euro, compared with 121 yen and 162 yen a year earlier.
Honda is the first of Japan’s three biggest automakers to report earnings. Nissan Motor Co., the country’s third-largest, will release earnings Aug. 1. Toyota Motor Corp., Japan’s biggest, will report Aug. 7. Information in this article was contributed by Oliver Biggadike, Makiko Kitamura and Mike Firn of Bloomberg News.
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