Honda's Net Income Rises 16% On Stronger International Sales
http://online.wsj.com/article/SB1185...googlenews_wsj
By AMY CHOZICK
July 25, 2007
TOKYO -- Honda Motor Co.'s emphasis on small, fuel-efficient vehicles has helped push its profit up 16% in the fiscal first-quarter and led the car maker to lift its full-year forecasts, even amid soaring raw-materials costs and expenses related to new production facilities.
The car maker said it couldn't keep up with demand in North America, where high gas prices are drawing consumers to such fuel-efficient models as the CR-V crossover and the Civic. World-wide sales grew 5.6% to 946,000 vehicles from 896,000 vehicles in the same period last year. In North America, Honda sold 465,000 vehicles, up 2% from 456,000 vehicles last year.
Honda said its brisk sales and the positive effects of the weak yen, which helps Japanese auto makers by increasing the value of overseas earnings when converted into Japanese currency, led to its ¥166.1 billion profit ($1.38 billion) in the April-June quarter, up from ¥143.4 billion in the same period last year. The company raised its net profit forecast for the year ending March 31, 2008 to ¥625 billion, a 5.5% increase from the ¥592.3 billion it made a year earlier. It had previously predicted a 2.9% drop in net profit to ¥575 billion for the year.
Honda's previous estimates were based on a conservative exchange rate of ¥115 to the dollar. So far this fiscal year, the yen has remained at about ¥120, causing the car maker to recalculate its earnings.
Honda, which last year surpassed Nissan Motor Co. as Japan's No. 2 car maker by sales volume, has been benefiting from the global thirst for smaller cars. Last week, Chief Executive Takeo Fukui announced that the car maker will increase its capacity worldwide to meet growing demand. A new car plant in Greensburg, Indiana will open next year with an annual capacity to produce up to 200,000 vehicles. Honda expects annual production in North America to reach 1.62 million vehicles by the fall of 2008, up from 1.4 million cars this year.
Costs related to the new plant, discounts on older models and higher prices on raw materials such as aluminum in the U.S. led Honda to report a 15% drop in operating profit in North America to ¥97 billion, despite a 7.9% increase in revenue in the region.
Honda's earnings stand in contrast to the losses reported by Japanese rival Nissan and Detroit's Big Three, which have been late to catch on to the small car craze. Toyota Motor Corp., Japan's No. 1 auto maker by sales volume, will report its first-quarter results next week.
Honda said its operating profit rose 8.9% to ¥221.6 billion from ¥203.5 billion. Revenue for the quarter grew 13% to ¥2.931 trillion. The company is predicting a 3.3% increase in operating profit to ¥880 billion from ¥851.8 billion.
One weak spot for the company is Japan, where Honda saw demand for its cars drop by 13% to 136,000 units. Overall demand for cars has been weak due to an aging population.
Honda reports its earnings based on U.S. accounting standards.