Honda Joins Toshiba in Cutting Forecasts as Yen’s Rise Hurts Manufacturers

Japanese makers of cars, chips and computers said profit would be less than previously expected this year as the stronger yen undermines a recovery from output setbacks caused by the March 11 earthquake.

Honda Motor Co. (7267), the nation’s No. 3 automaker; Toshiba Corp. (6502), its biggest chipmaker; and Fujitsu Ltd, the largest computer services firm, lowered their earnings forecasts yesterday for the year ending March 31.

Toshiba, maker of televisions, aerospace components, nuclear reactors and notebook computers, said the stronger Japanese currency would probably reduce operating profit by 40 billion yen ($524 million). Costs from floods that shut factories in Thailand cut another 40 billion yen from the previous projection for 300 billion yen, Makoto Kubo, executive vice president, told reporters in Tokyo yesterday.

“The most important thing is the exchange rate for next fiscal year,” Masaru Hamasaki, chief strategist at Toyota Asset Management Co. in Tokyo, said yesterday by phone. He said he expects the currency to weaken to as far as 85 yen against the dollar in 2012.

The Japanese currency’s gain of about 9 percent against the euro and 5.5 percent versus the dollar last year reduced the value of earnings repatriated from overseas and made the country’s exports less cost-competitive.

Exchange Rate Forecasts

Honda revised its outlook for the yen against the dollar to 78 from 80, and 106 from 112 versus the euro. The Tokyo-based automaker has said it would build its new NSX supercar in Ohio as it shifts output to North America in response to the yen’s gains. Operating income declines by 15 billion yen for every one yen gain against the dollar, the company estimates.

The Thai floods will cost Honda about 110 billion yen this fiscal year, while the yen’s advance will shave about 57 billion yen from annual profit, it said in yesterday’s statement. Operating profit, or sales minus the cost of goods sold and administrative expenses, will probably be 200 billion yen, 26 percent less than the previous forecast for 270 billion yen.

Canon Inc. (7751), the world’s largest camera maker, fell by 4.2 percent, the most in 10 months, in Tokyo trading after forecasting annual profit that missed analyst estimates and saying its president will resign.

Shifting Overseas

The camera maker, which also makes office equipment and chipmaking gear, said yesterday it would invest 18 billion yen to build a plant in the Philippines, joining companies, including Honda, Nissan Motor Corp. and Toshiba, that plan to expand overseas.

Canon President and Chief Operating Officer Tsuneji Uchida, 70, will step down from both posts after the company said net income this year will probably increase to 250 billion yen, less than the 304 billion-yen average of 20 analyst estimates compiled by Bloomberg as of Jan. 30.

The company makes more than half of its sales overseas, and based this year’s estimate on the yen averaging 75 versus the dollar and 100 against the euro, appreciations of 5 yen and 11 yen, respectively. The company is also investing 15 billion yen in Thailand for a new office-systems venture.

Thailand’s worst floods in decades may drag down full-year profits of listed Japanese manufacturers this fiscal year, SMBC Nikko Securities Inc. estimated in October.

The surging waters forced factories to shut and snarled transportation, causing supply chain disruptions that led to shortages of auto parts, computer hard drives, electronics components and semiconductors.

No Quarter

The effect of the strengthening yen has been grinding down manufacturers competitiveness and profits all year, said Hamasaki at Toyota Asset.

“These cuts in earnings forecasts could not be helped,” Hamasaki said. “The effects of a stronger yen are just too much, even for the best-run companies.”

The surging currency, pushed up as Japanese investors seek a haven from Europe’s debt crisis and a U.S. policy of pumping dollars into the economy, has prompted calls for help from some of Japan’s biggest and most powerful companies.

“How much longer should we insist on producing in Japan?” Toyota Chief Financial Officer Satoshi Ozawa, seated next to President Akio Toyoda, said at a Tokyo press conference in May. “Our efforts may have exceeded the limits of what is possible in dealing with the yen’s impact.”

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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