Honda Net Forecast Trails Estimates on Recalls, U.S. Sales

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Honda Motor Co. forecast profit that fell short of analyst estimates as the Japanese carmaker recovers from its worst vehicle recalls in decades and as weaker overseas currencies erode earnings.

Net income will probably rise to 525 billion yen ($4.4 billion) in the fiscal year ending March 2016, based on U.S. GAAP accounting standards, from 522.8 billion yen a year earlier, the company said in a statement Tuesday. That compares with the 661 billion-yen average of 25 analyst estimates compiled by Bloomberg.

Honda’s President Takanobu Ito will step down in June after quality problems led to the company’s biggest vehicle recalls in decades and delayed the introduction of new models. The company predicts higher selling, general and administrative expenses -- which include quality-related costs -- will erode full-year operating profit by 90 billion yen.

“The company is waiting for the boost from major new models, such as the Pilot SUV and Civic,” Koichi Sugimoto, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said before the earnings announcement. “There are still lingering concerns over recall costs and the impact on Honda’s reputation.”

Honda is getting less of a boost from a weakening yen than Japanese peers Toyota Motor Corp. and Nissan Motor Co., after moving more aggressively to localize production in foreign markets. While a stronger dollar may add 69 billion yen to Honda’s earnings, weaker currencies in markets including Brazil, Canada, Mexico and Europe will probably cut operating income by 154 billion yen, Honda said in a presentation.

Fourth Quarter

For the fourth quarter ended March, Honda’s GAAP net income fell to 97.8 billion yen from 170.5 billion yen, missing the 135.3 billion-yen average of 12 analyst estimates compiled by Bloomberg.

Honda has revamped its research units after recalls linked to flawed air bags made by Takata Corp. as well as its own new hybrid systems in the best-selling Fit compact car and Vezel SUV. The company has recalled millions of vehicles to fix defective Takata air bags that have been linked to deaths in the U.S. and Malaysia.

The carmaker resumed introducing new models in Japan at the end of last year after five recalls on its new Fit compact car triggered a re-examination of new vehicle quality and prompted a temporary halt of new models. Domestic sales fell 7 percent last fiscal year, the first decline in three years.

Honda rose 0.3 percent to close at 4,330.5 yen in Tokyo trading before the earnings announcement. The stock has gained 23 percent this year, compared with a 16 percent advance by the benchmark Topix index.

The company, which is switching to the International Financial Reporting Standards system, said full-year net income under IFRS will probably also be 525 billion yen.

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