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Honda Cuts Profit Forecast After Thai Floods, Stronger Yen

Honda Cuts Profit Forecast
Honda Motor Co.'s new Civic automobile. Net income will fall to 215 billion yen ($2.8 billion) in the 12 months ending March 31, compared with a previous estimate of 230 billion yen, the company said in a statement today. Photographer: Hannelore Foerster/Bloomberg

Honda Motor Co., Japan’s third-largest automobile maker, lowered its full-year profit forecast after Thailand’s worst floods in almost 70 years disrupted Southeast Asian production.

Net income will decline to a three-year low of 215 billion yen ($2.8 billion) in the 12 months ending March 31, compared with a previous estimate of 230 billion yen, the company said in a statement today. Honda also lowered projections for operating profit and revenue.

The Thai floods hit Toyota Motor Corp. and Honda as they were recovering from the deadly tsunami that ravaged northeastern Japan in March, allowing General Motors Co. and Hyundai Motor Co. to gain market share. Japanese confidence is now returning, with Honda President Takanobu Ito saying last week he expects record vehicle sales next fiscal year amid a “complete rebound.”

“The company will probably see the best improvement in its financial status among Japanese carmakers after production returns to normal because Honda was probably the worst hit,” said Takashi Aoki, a fund manager at Tokyo-based Mizuho Asset Management Co. “Its production growth will probably be much faster than others.”

Honda estimates the Thai floods will cost the company 110 billion yen this fiscal year and the appreciation of the yen will cost about 57 billion yen, it said. That led the company to lower its forecast for operating profit, or sales minus the cost of goods sold and administrative expenses, by 26 percent to 200 billion yen.

Analysts Miss Again

Average analyst estimates compiled by Bloomberg called for Honda to raise its forecast for net income to about 250 billion yen and keep the one for operating profit unchanged. Before Toyota slashed its profit forecast by 54 percent last month, the average analyst estimate had projected for no change.

Third-quarter net income fell 41 percent from a year earlier, while operating profit declined 65 percent and revenue dropped 8 percent, the company said.

Honda, the maker of the Civic and Accord sedans, is predicting earnings to recover next fiscal year.

Sales in the 12 months ending March 2013 will exceed 4 million vehicles for the first time as the carmaker heads for the “year of the complete rebound,” President Ito said in an interview last week. The redesigned Accord sedan, the Civic and CR-V sport-utility vehicle will help Honda increase U.S. sales 24 percent to 1.43 million units in 2012, Ito said.

Annual production at Honda fell for the second time in three years, declining 20 percent to 2.91 million units in 2011. Worldwide output at Toyota Motor Corp., Asia’s biggest carmaker, fell 8.2 percent to 7.8 million units last year.

Best Performer

Honda fell 0.6 percent to 2,666 yen at the 3 p.m. close of Tokyo trading before the earnings announcement. Honda shares have added 14 percent this year, the best performer among Japan’s three biggest carmakers.

Honda revised its outlook for the yen against the dollar to 78 from 80, and 106 from 112 versus the euro. The company estimates its operating income to be reduced by 15 billion yen for every one yen gain against the dollar, and 1 billion yen to the euro.

“Honda wasn’t even able to compete this year,” said Satoru Takada, a Tokyo-based auto analyst at research firm Toward the Infinite World Inc. “There will be a recovery next fiscal year though, as Honda introduces new cars and inventory recovers in North America.”

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