Honda, Toyota and Nissan After Natural Disasters and Rebuilding

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Automakers & Suppliers

Honda quarterly profit jumps on N.A. gains; executives confident on recovery

ON: July 31, 2012 - 5:01 am ET, UPDATED: 7/31/12 7:19 am ET - new story

TOKYO (Reuters) -- Honda Motor Co.'s quarterly profit surged nearly eight-fold on a rebound in its key North American market, prompting Japan's third-biggest carmaker to reaffirm its full-year earnings outlook and maintain its ambitious global sales target.

Sales volumes surged globally in the three months to June as Honda's restored production network, wrecked by last year's earthquake and tsunami in Japan and floods in Thailand, finally caught up with pent-up demand. The company's market share has recovered to pre-quake levels in the United States, its largest market, industry data shows. Honda reported its quarterly results earlier today.

While Honda still faces headwinds from a strong yen and its April-June profit missed analysts' forecasts, Japan's auto firms are showing signs of strength. Toyota Motor Corp. is set to raise its 2012 global sales target, according to Japanese media reports, while auto parts maker Denso Corp. boosted its full-year operating profit forecast by 22 percent.

"There's two tales here," said Christopher Richter, analyst at CLSA Asia-Pacific Markets, of Honda's quarterly results.

"They've had some huge growth and decent margins but at the same time below what analysts have been expecting."

Honda, which makes Accord sedans and Super Cub motorcycles, was hit much harder than rivals Nissan Motor Co. and Toyota in the last financial year by natural disasters in Japan and Thailand that disrupted supply chains.

It has set a global sales target of 4.3 million vehicles in the financial year to March 2013, up 38.4 percent from the previous year, with North America to account for about 40 percent of the total.

"While there are various risk factors such as economic conditions and currency moves, as well as a uncertainty over demand, Honda will maintain its forecast," Honda Chief Financial Officer Fumihiko Ike told reporters.

"We think that our (April-June) operating profit of 176 billion yen ($2.25 billion) is basically on track when we compare it with our guideline of 620 billion yen for the financial year," he said.

Revamped Accord

Whether Honda can achieve its ambitious sales target will depend in part on how its flagship Accord sedan is received in the U.S. market after a revamp this fall with a new generation of engines and transmissions to boost fuel efficiency.

But competition has heated up, especially from a resurgent U.S. industry and emerging South Korean rivals.

"There are too many models in a segment that used to be dominated by Japanese brands," Kunihiko Shiohara, managing director at Credit Suisse in Tokyo, said before the announcement.

Japan's auto giants have proved their resilience, however, with Toyota leapfrogging past General Motors Co. as the world's largest automaker in the first half of this year as its production network recovered from last year's disasters.

Toyota has forecast record sales of 9.58 million vehicles for this year, and the output revisions that Japanese media said today would soon be announced will bring it close to the 10 million mark.

Denso boosted its full-year operating profit forecast by 22 percent to 250 billion yen, lifting its shares by 1.8 percent to their highest close in three weeks.

But Japan's exporters have also got little respite from the steady rise in the yen, which reduces their competitiveness against South Korean automakers and other overseas rivals, and eats into income earned abroad when it is converted into yen.

Nissan, which was the quickest to recover from last year's disasters, reported a worse-than-expected 20 percent drop in quarterly profit last week.

The company stuck to its full-year target, however, vowing that a revamped version of its Altima sedan would bolster its earnings.

Honda is falling short of expectations in its latest quarter, said CLSA's Richter, followed the same pattern.

"I think it's similar to what we saw with Nissan -- higher sales expenses in North America ... geared to clearing out inventory and preparing for new launches."