Honda Profit Misses Estimates as Sales in Thailand Slump

Honda Motor Co. (7267), Japan’s third-largest carmaker, reported profit that missed analysts’ estimates for a 10th straight quarter as slumping demand in Thailand prompted the company to cut sales projections.

Net income climbed to 160.7 billion yen ($1.6 billion) in the three months ended Dec. 31, the Tokyo-based company said in a statement today. Though profit doubled from a year earlier, it was 4.5 percent below the average of eight analyst estimates compiled by Bloomberg. The last time Tokyo-based Honda beat estimates was in the period ended June 2011.

The company trimmed its sales forecasts for automobiles and motorcycles this fiscal year as the Southeast Asian country overshadows what’s otherwise been a golden year for Japanese corporate earnings, which have benefited from the weaker yen. The slump in Thailand, where Honda saw deliveries plunge last quarter, will probably continue because of the political turmoil there, the company said.

“Every Japanese carmaker was hurt in Thailand, and so was Honda,” said Kota Yuzawa, an analyst at Goldman Sachs Group Inc. in Tokyo. “Honda hasn’t launched its new hit products in the region so we’ll have to wait until next year to see a pickup in volumes.”

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A Honda Motor Co. employee carries a front grille for the Honda City on the production line at the company's assembly plant at the Rojana Industrial Park, Ayutthaya Province, Thailand. Close

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A Honda Motor Co. employee carries a front grille for the Honda City on the production line at the company's assembly plant at the Rojana Industrial Park, Ayutthaya Province, Thailand.

Lowered Forecasts

The company lowered its full-year sales projections for vehicles and motorcycles by about 1 percent, with Honda now expecting to deliver 4.385 million automobiles and 17.32 million motorcycles. While quarterly net income was lower than analysts estimated, operating profit of 228.6 billion yen was higher than the 220.4 billion yen average analyst estimate compiled by Bloomberg.

Honda declined 0.3 percent to 3,893 yen as of the close in Tokyo trading today, before it announced earnings. The stock has fallen 10 percent this year, compared with a 8.5 percent decline for the benchmark Nikkei 225 Stock Average.

The stock has 18 buys, 6 holds and 1 sell. It’s among the top Japanese picks this year for Barclays Plc (BARC), Bank of America Corp.’s Merrill Lynch, Citigroup Inc. and Nomura Holdings Inc.

Yen Reversal

Honda is among Japanese exporters benefiting from Prime Minister Shinzo Abe’s economic policies, which have helped weaken the country’s currency by about 18 percent against the dollar in 2013. A weaker yen increases the value of repatriated earnings and gives Japanese carmakers an edge over rivals including General Motors Co. (GM) and Hyundai Motor Co.

Before Abe, the Japanese currency had hobbled exporters for years, appreciating to a postwar high of 75.35 to the dollar in October 2011 from about 115 in a four-year period. The yen began tumbling in late 2012 as polls showed Abe, who called for unprecedented monetary-easing policies that could weaken the currency, would lead his Liberal Democratic Party to a win in the nation’s parliamentary elections.

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An employee assembles the Honda Motor Co. Mobilio multi-purpose vehicle at the PT Honda Prospect Motor factory in Karawang, Indonesia. Close

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An employee assembles the Honda Motor Co. Mobilio multi-purpose vehicle at the PT Honda Prospect Motor factory in Karawang, Indonesia.

North America

In North America, Honda reaped 131.1 billion yen in operating profit last quarter, increasing from 70.89 billion yen a year earlier. That compares with the 79 billion yen that Tatsuo Yoshida, an auto analyst at Barclays Plc in Tokyo, had estimated.

Honda showed a retooled Fit small car at the Detroit auto show this month that will be sold in North America starting this year. The company is counting on the model to grab market share from GM’s Chevrolet Sonic hatchback and Ford Motor Co.’s subcompact Fiesta.

Honda had its second-best year in the U.S., as demand increased for Honda and Acura vehicles.

Japan

Tetsuo Iwamura, Honda’s executive vice president in charge of the U.S. business, said in an interview in December that fixing Acura’s sedan lineup has become a top priority. The company showed the new TLX sedan, a replacement for the TL, at the North American International Auto Show in Detroit this month.

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The Honda Motor Co. logo is displayed during the Washington Auto Show in Washington, D.C. Close

The Honda Motor Co. logo is displayed during the Washington Auto Show in Washington, D.C.

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The Honda Motor Co. logo is displayed during the Washington Auto Show in Washington, D.C.

Operating profit rose 46 percent to 59.3 billion yen in Japan, compared with the 80 billion yen estimated by Barclays.

Japan deliveries jumped in the quarter, helped by the new Fit and the rush buying before the sales tax rise in April.

The Fit, introduced Sept. 6, became Japan’s top-selling car from October through December, overtaking Toyota Motor Corp.’s Aqua.

New compact models will also be introduced in the U.S. and emerging markets this year as the carmaker aims to raise worldwide annual compact-car sales to 1.5 million units by 2016.

Honda, which introduced its N-series mini vehicles in 2011, saw minicar sales jump 27 percent in 2013 from a year earlier, according to Japan Mini Vehicles Association. Minicars, with engines smaller than 0.66 liters, account for about 40 percent of new-car sales in Japan, thanks to lower prices and taxes.

China Recovery

In China, the world’s largest auto market, Honda’s sales doubled last quarter, as a consumer backlash eased over a territorial dispute between Japan and China. Full-year China deliveries rose to a record, fueled by the Jade wagon and Crider sedan, which Honda says are the company’s first models tailored for the Chinese market.

Industrywide sales are projected to expand by as much as 10 percent this year, after the country became the first to surpass 20 million units in annual deliveries, according to the China Association of Automobile Manufacturers.

Honda expects sales to rise at least 19 percent to more than 900,000 vehicles in China in 2014. The carmaker plans to introduce nine new or revamped models in 2014 and 2015, as it seeks to catch up with Nissan Motor Co. (7201) and Toyota Motor Corp. in the world’s largest auto market.

In Asian markets excluding Japan, operating profit rose 23 percent to 50 billion yen, in line with the amount Barclays’s estimate. Iwamura said today he expects the Thai market to shrink 15 percent this year.

The operating loss in Europe widened to 8.7 billion yen, versus Barclays’s estimate for a 2 billion yen profit.

To contact the reporter on this story: Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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