Honda raises forecast; quarterly earnings drop

[October 27, 2009]  TOKYO (AP) -- Honda Motor Co. raised its full year profit forecast despite quarterly earnings diving more than half, with "green" car incentives in Japan and growth in China expected to further boost vehicle sales.

Net profit for the July-September quarter fell 56 percent from a year earlier to 54.0 billion yen ($587.0 million), the company said Tuesday, hit by a strong yen and the weak global auto market.

But the result was better than expected and Honda, Japan's No. 2 automaker, now forecasts a net profit for the fiscal year ending March of 155 billion yen ($1.7 billion). That's nearly four times its initial outlook for a 40 billion yen ($435 million) profit, which was raised to 55 billion yen ($598 million) in July.

"The numbers were surprising," said Yoshihiro Okumura, auto analyst with Chiba-gin Asset Management. "The better vehicle sales numbers are producing results."

He said a bigger fall in profit was avoided by strong sales in Japan, driven by green incentives, and good sales numbers in Asia.

The automaker also raised its forecast for sales this fiscal year to 3.4 million vehicles. It expects more sales in emerging Asian markets and also in the previously sluggish Japan where tax breaks and government-backed discounts for green vehicles are helping along a recovery.

Honda in July forecast vehicle sales of 3.29 million but the new projection is still less than the nearly 3.52 million vehicles it sold globally the previous fiscal year.

Honda, which makes the Insight gas-electric hybrid, Asimo robot and Accord sedan, said quarterly sales fell 27.2 percent from a year earlier to 2.057 trillion yen ($22.4 billion).

A strong yen weighed on Honda's results. Unfavorable currency exchange rates erased 79.7 billion yen ($866 million) from Honda's quarterly operating profit, it said in a statement. The dollar bought 106 yen the previous year but has fallen to 90-yen levels lately.

Honda said auto sales grew in China and India, as well as in Japan during the quarter. Honda as well as rival Toyota Motor Corp., with their reputation for green cars, are enjoying the benefits of government incentives for fuel efficient and gasoline-electric hybrid cars.

Even in the U.S., where vehicle sales fell during the quarter, a cash for clunkers program also helped sales, Honda said.

Honda, which has focused on smaller fuel-efficient models, has fared relatively better than some rivals in weathering the global auto slump.

It stayed in the black in the fiscal year ended March 2009, while Toyota and Nissan Motor Co. slipped into losses. Toyota reports earnings Nov. 5, Nissan on Nov. 4.

Honda has also been helped by its strong motorcycle business, which has been enjoying growth in Vietnam and India.

Honda now expects to sell 665,000 vehicles in Japan for the full year, up 19.6 percent from the previous fiscal year.

It hopes to sell 910,000 vehicles in the rest of Asia, up 14.8 percent. Sales are expected to decline in North America to 1.31 million vehicles, down 12.8 percent from the previous year.

Honda also beat its own forecast for the first half, booking a net profit of 61.5 billion yen ($668 million), better than its earlier projection for a 10 billion yen loss.

Honda shares, which have been gradually gaining over the past year, slipped 1.9 percent to 2,845 yen ($31) in Tokyo Tuesday.

[Associated Press; By YURI KAGEYAMA]

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