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Honda Profit Misses Analyst Estimates on Yen, Expenses

Honda Motor Profit Misses Analyst Estimates on Yen, Expenses
Honda, which joins Nissan Motor Co. in reporting profit that trailed analysts’ projections, increased spending on incentives in the U.S. by 31 percent last quarter, the most among major Japanese carmakers, according to Autodata Corp. Photographer: Scott Eells/Bloomberg

Honda Motor Co., Japan’s third-largest carmaker, reported first-quarter profit that missed analysts’ estimates after the yen strengthened and the company increased marketing spending to sell outgoing models.

Net income was 131.7 billion yen ($1.7 billion) in the three months through June, Honda said in a statement today. That missed the 150.7 billion yen average of seven analyst estimates compiled by Bloomberg. Except for Japan, earnings from all of Honda’s main regions were below expectations.

Honda, which joins Nissan Motor Co. in reporting profit that trailed analysts’ projections, increased spending on incentives in the U.S. by 31 percent last quarter, the most among major Japanese carmakers, according to Autodata Corp. The yen appreciated the most among major global currencies in the same period, cutting the value of overseas sales.

“It seems like the sales recovery in North America was not enough to make up for the slowdown in Europe, and the added spending on incentives in North America may have weighed down on the earnings, too,” Mitsushige Akino, who oversees about $500 million in assets at Tokyo-based Ichiyoshi Investment Management Co. “As Honda’s biggest market is North America, the carmaker’s recovery will depend on how the market will perform through the rest of the year.”

Debt Crisis

If the impact from the European debt crisis remains limited at the current level, industrywide deliveries in the U.S. should reach about 14.3 million, Tetsuo Iwamura, executive vice president and North American chief operating officer, said today in Tokyo.

Honda will need to take measures to “maintain efficiency” in Europe if the sovereign debt crisis is prolonged, he said, without providing details. The carmaker said last week it plans to “temporarily” introduce shortened work weeks at its plant in U.K.’s Swindon from September to November due to the economic downturn in Europe.

Honda shares rose 2.1 percent to 2,551 yen at the close of trading in Tokyo before the earnings announcement.

Operating profit, or sales minus the cost of goods sold and administrative expenses, rose almost eightfold to 176 billion yen, though it missed the 212.4 billion yen average analyst estimate. Sales gained 42 percent to 2.44 trillion yen, also missing estimates.

Yen Gains

Honda kept its full-year financial forecasts unchanged. The automaker is targeting full-year sales of 10.3 trillion yen and record deliveries of 4.3 million vehicles, according to the company. The company is setting its forecasts based on exchange rates of 80 yen to the dollar and 105 yen to the euro.

The yen gained 3.9 percent versus the dollar in the April to June period, and 9.4 percent against the euro, according to data compiled by Bloomberg.

Gains in the Japanese currency reduce the repatriated value of overseas earnings. The Japanese currency traded at 78.23 yen against the dollar today.

Honda’s operating profit from North America rose fourfold to 82.2 billion yen from 18.5 billion yen a year earlier. That missed the 105.2 billion yen average estimate of three analysts surveyed by Bloomberg.

Europe Loss

In Japan, the company posted a 61 billion yen operating profit after reporting a 45.9 billion yen loss a year earlier. The average analyst estimate was for a 46.1 billion yen profit. Asia, excluding Japan, contributed 31.8 billion yen in operating income, lower than the 35.6 billion yen average analyst estimate.

Europe posted an unexpected loss of 7.63 billion yen, compared with the average analyst projection for a 3.5 billion yen profit. The region had a 6.1 billion yen loss a year earlier.

In the first quarter, Honda’s U.S. sales gained 27 percent to 380,817 units, according to the Tokyo-based carmaker. The carmaker increased its market share 0.9 percentage point to 10 percent in the same period, according to industry researcher Autodata Corp.

In Japan, the Honda N Box, on sale since December, was the most popular minicar model for a third month in June, according to the Japan Mini Vehicles Association. The carmaker this month introduced a variant of the N Box to cater to increasing demand for more fuel-efficient models.

Honda boosted sales in China by 75 percent to 178,887 units in June as Japanese automakers rebounded from the earthquake and tsunami in Japan a year earlier.

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